Hint: You won’t find them in the Wall Street Journal

Finding the right investment “theme” is often promoted as the key to success in the stock market. We agree, and at Dock Street we’ve discovered some big ones over the years. But we didn’t find them by actually looking for themes.

At Dock Street we discover investment themes by finding great businesses. We search for businesses enjoying extraordinary financial success. It turns out that successful businesses are riding (or creating) trends and our work involves understanding the durability of those trends.

But even when an investor identifies a new industry or technology, that new idea needs to be “investable.” Take 3-D printing. Many years ago it was a hot topic and turned out to be a massively successful technology. SpaceX prints parts for rocket engines and GE prints nozzles for jet engines. And mechanical engineers print prototypes at their desks for parts they’ve designed on a computer.

But where are the large 3-D printing businesses? They exist, but it turns out it is a highly competitive business and therefore the financial returns are less than impressive. They don’t show up at Dock Street—or in the S&P 500 for that matter.

Investors need to turn off CNBC and stop reading the financial press in the hopes of finding “the next big thing.”

Here are a couple investment themes that have helped Dock Street clients in the last few years:

• Credit cards replacing cash for small transactions
• Cloud computing displacing on-premises data centers

We find investment themes, but we do it from the bottom up, one business at a time, instead of from the top down. 

Best regards,

Daniel A. Ogden