How Do I Choose Between Companies
One of my favorite restaurants in Dublin does burgers and fries and nothing else. If you like, you can get some extras put in your burger like cheese or fried onions. You can even double up on the beef patty if you're feeling particularly hungry but, in essence, all you can get from this place is a standard beef burger with a side of fries. The menu is so small that it’s actually printed on the back of a business card.
Nonetheless, this small chain of restaurants is wildly popular. Before the COVID-19 restrictions came into place, you could reasonably expect to wait at least thirty minutes for a table on a normal Friday or Saturday night. Imagine explaining to someone that you’re late because you decided to wait half an hour for a burger?
So what gives?
Well, apart from serving very nice burgers (my colleague Roberto has awarded them the ‘Best Burger in Dublin’ for three years running — no mean feat), this restaurant has tapped into something that plagues consumers of all sorts — decision paralysis.
We all know the feeling of sitting down in a nice restaurant, picking up a menu, and suddenly finding ourselves unable to decide on what we actually want to eat. Or trying to pick out a new television to buy from the wall of TVs in your local electronics store. Recently, it took me about four weeks to buy a new pair of black trainers because I couldn’t choose from the sixteen different brands sold in the online store. They all pretty much looked the same but I still couldn’t decide.
Decision paralysis occurs when we have to select from options that are difficult to compare. The more options we have in front of us, the harder it becomes to choose just one, and what can often happen is that we end up doing nothing at all.
Recently, a member of the MyWallSt community wrote in asking us to help them decide between two companies in our shortlist that they wanted to invest in — Berkshire Hathaway and American Tower. They liked both of these companies as investments but only had enough money available at the time to build what they considered a ‘full’ position in one of them.
Trying to choose between two attractive investments is a dilemma that many investors run into over the course of their investing life. In investing, however, doing nothing out of paralysis could actually end up losing you a lot of money.
To shake yourself out of this indecision, what you need to do is drill down into the particulars of the two companies in question and make the comparison more tangible. In the case of Berkshire Hathaway versus American Tower, here’s an example of some of the things I asked this MyWallSt member to consider:
The size of the companies — Berkshire Hathaway has a market cap of more than $460 billion, while American Tower's market cap is circa $115 billion. Neither of these are what you could consider small companies, but the fact that Berkshire is four times the size of American Tower says a lot about their runways as investments. Berkshire Hathaway could probably be considered more of a slow and steady company while American Tower might offer slightly more runway in terms of potential growth.
Management — Investing in Berkshire Hathaway is essentially handing your money over to history's greatest investor to manage. Seems like a no-brainer, right? American Tower doesn't have such a famous boardroom but, on the other hand, it does have a new CEO in Thomas Bartlett that might bring in some fresh ideas to the company.
Dividends — American Tower pays dividends, Berkshire Hathaway doesn't. Does receiving dividends from your investments matter to you?
Wider trends — The global rollout of 5G is a very exciting prospect that is likely to benefit a company like American Tower massively. Berkshire Hathaway, meanwhile, has a stake in dozens of companies. Is there a specific trend that you want to gain exposure to which might be achieved through an investment in either of these companies?
Of course, this is just an example suited to these specific companies and probably won’t apply precisely to your own decision. The key, however, is not just to think of these companies as two items on a menu but rather as complex organizations that have a lot more differences than similarities in most cases.
In fact, one overarching question that might actually apply to all situations is which company do you prefer learning about? Remember, a long-term investor should be planning on holding these investments for ten years at least, so it would be beneficial to invest in the companies that you are interested in finding out more about as time goes on.
Now, I’m off to see if I can order a burger for delivery on JustEat. Or maybe Deliveroo? Uber Eats?