I have a peculiar investment strategy for building up my portfolio. I invest in companies that produce what I need.
To illustrate my investment strategy, it works in the following manner:
- I identify some need, such as need for electricity or need for lithium for batteries of the future electric vehicle I haven't yet purchased.
- I identify the best company producing what I need. For example, in the case of electricity, it would be a locally operating hydropower company. In the case of lithium, it would be Albemarle or perhaps SQM.
- I calculate how much of the money could trickle to me back in the form of dividends, should the price of the product increase. An example: if I pay 1.24 euros with 24% value added tax more for a certain amount of electricity, the hydropower company gets 1.00 euros more of which it pays 20% corporate tax, leaving 0.80 euros more. By paying 0.80 euros more dividend, I get 0.596 euros more because of the dividend tax. Thus, I should multiply my "natural ownership" by 1.24/0.596 = 2.0805 times, or approximately by 2. So, what I'm doing here is really a form of differential analysis.
- I calculate how much of the product I need. For example, let's say I expect I need in the near future 10000 kWh / year of electricity. I multiply the "natural ownership" by 2 due to the aforementioned tax reasons, meaning I buy 20000 kWh / year worth of hydropower due to taxation reasons. I also need about 19 kg of lithium for my future electric car, which should be good for 10 years so I need 1.9 kg / year of lithium, and multiplied by two, 3.8 kg / year of lithium.
- I then calculate how much of the product such as electricity one share of the company produces. For example, one hydropower company share produces 63.1 kWh / year of power. My taxation-adjusted natural ownership would be 317 shares (of which I currently have 243 so I'm going to slowly increase the ownership -- slowly, because hydropower is currently expensive). Also, Albemarle expects to produce about 50 million kilograms of lithium per year in the form of lithium hydroxide by 2025. Thus, I need 76 billionths of Albemarle, or 8 shares given 105.96 million shares outstanding. Because 8 shares of Albemarle cost next to nothing, I'm about to purchase them tomorrow.
- Only last, do I calculate how much I need to pay for the company whose stock I'm about to purchase. I estimate whether the cost I need to pay for the given amount of shares seems reasonable.
All of the time, I have more investment ideas than I have funds for investing. Thus, the cost I have to pay for the ideas is ultimately what decides which ideas are worth pursuing and which are not. If pursuing this strategy for long enough time, it's possible to exhaust all investment ideas.
Sometimes, I fail to find a company I can invest into. For example, I have recently started photography, but the imaging products division of Canon is only 25% of the company, so I would need to purchase the rest 75% too, which I don't really need. So, even though I do spend money to purchase photography equipment, I'm not going to purchase photography related stocks because there are none that are purely about photography at least in the stock exchanges I have access to (I don't have access to the Japanese stock exchanges -- Canon would be listed too in a U.S. stock exchange so investing to it could be a possibility).
It helps tremendously in this strategy that my bank has 1% maximum commission for purchasing stocks, i.e. if I buy only 100 EUR, I pay only 1 EUR commission. Also, my spending habits don't change every year, so this strategy gives stocks I can perfectly well own for 10 years or more, meaning the cost per year is 0.1%.
I have tried to find a name for this kind of investment strategy, but I'm not sure if this is my invention or if somebody else does the same thing. The closest I have found is "fundamental indexing", but that's not 100% accurate because fundamental indexing creates a portfolio that is suitable for average consumer, not taking account the investor's personal spending habits. On the other hand, my investment strategy fully takes into account my spending habits.
So, is there an official name for this kind of investment strategy? Is it fundamental indexing?