1. The Unreasonale Man
  2. World’s Greatest Investor
  3. Lessons form the 3 wise men of finance
  4. Guidelines for buying a business: 13 immutable tenets
  5. Focus investing: Theory and Mechanics
  6. Managing your portfolio: The Challenges of Focus Investing
  7. The emotional side of money
  8. New opportunities, timeless principles
  1. Analyse stocks as a business
  2. demand a margin of safety for each portfolio
  3. Manage a focus portfolio
  4. Protect yourself from the speculative and emotional forces of the market

a quotation…

“The reasonable man adapts himself to the world,” wrote George Bernard Shaw. “The unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Lessons…

  1. Analyse stocks as businesses
  2. Manage a focused, low-turnover portfolio
  3. Understand the difference between investment and speculation

Managing a portfolio of business…

Now that you are managing a portfolio of businesses, not only will you avoid selling your best businesses, you will exercise much greater care when you pick new businesses for purchase. As the manager of a portfolio of businesses, you must resist the temptation to purchase a marginal company just because you have cash reserved.

Criteria…

His criteria are straightforward: a simple, understandable business with consistent earning power, good return on equity, little debt and good management in place…. He’s not interested in turnarounds, hostile takeovers, or tentative situations where no asking price has been determined.

Buffet’s questions…

1. what are the sales 2. what are the gross profits 3. what are the expenses 4. what’s in inventory 5. are you willing to stay on

Graham’s philosophy:

There are 2 rules of investing said Graham. The first rule is: Don’t lose. The second rule is: Don’t forget rule number. This ‘don’t-lose’ philosophy steered Graham towards 2 approaches to selecting common stocks that, when applied, adhered to the margin of safety: (1) buy a company for less than 2/3 of its net asset value and (2) focus on stocks with low price to earning ratio

Fisher’s philosophy…

Fisher came to believe that superior profits could be made by (1) investing in companies with above average potential and (2) aligning oneself with the most capable management.

Tenets of Warren Buffet:

1. is he business simple and understandable? 2. does the business have a consistent operating history? 3. does the business have favorable long-term prospects?

Management tenets:

1. is the management rational? 2. is management candid with its shareholders? 3. does the management resist the institutional imperative?

Financial Tenets:

1. Focus on return on equity not earnings per share. 2. Calculate “owner earning” 3. Look for companies with high profit margins 4. For every dollar retained, make sure the company has created at least one dollar of market value

Market Tenets:

1. What is the value of the business? 2. can the business be purchased at a significant discount to its value?

Role of CEO…

Another common problem is poor allocation. As Buffet points out, CEOs often rise to their position by excelling in other areas of the company, including administration, engineering, marketing or production. Because they have little experience in allocating capital, most CEOs instead turn to their staff members, consultants, or investment bankers and the institutional imperatives begins to enter the decision-making process.

Intelligent investor…

The most distinguishing trait of Buffet’s investment philosophy is the clear understanding that, by owning shares of stocks, he owns business, not prices of paper. The idea of buying stocks without understanding the company’s operating functions – its products and services, labor relations, raw materials expenses, plant and equipments, capital re-investment, inventories,  - is unconscionable says Buffet. This mentality reflects the attitude of business owners as opposed to a stock owner, and is the only mentality as investor should have. In summation of The Intelligent Investor, Benjamin Graham wrote, “Investing is most intelligent when it is most business like.”

Focus investing…

Warren Buffett is far from that kind of frenzy. He moves with the calm that comes of great confidence. He has no need to watch a dozen computer screens at once; the minute-by-minute changes in the market are of no interest to him. Warren Buffett doesn’t think in minutes, or days, or months, but years. He doesn’t need to keep up with 100s of companies, because his investments are focused in a select few. He refers himself as a ‘focus investor’.

Focus Investor’s Golden Rules…

1. Concentrate your investments in outstanding companies run by strong management 2. Limit yourself to the number of companies you can truly understand. Ten is a good number; more than 20 is asking for trouble. 3. Pick the very best of your companies, and put the bulk of your investments there 4. Think long term – 5 to 10 years, minimum 5. Volatility happens, carry on

Kelly Model…

1. learn to think probabilities 2. stay in the game long enough to achieve its rewards 3. avoid using leverage with its unfortunate consequence 4. demand a margin of safety with each bet you make

Warning Labels…

1. Do not approach the market unless you are willing to think about stocks, first and always, as part ownership interest in business 2. Be prepared to diligently study the businesses you own, as well as the companies you compete against, with the idea that no one will know more about your business or the industry than you do 3. DO not even start a portfolio unless you are willing to invest a minimum of 5 years. Longer time horizons will make for  safer ride 4. never leverage your focus portfolio. As un-leveraged focus portfolio will help you reach your goals fast enough. Remember, an unexpected margin call on your capital will likely wreck a well-tuned portfolio 5. Accept the need to acquire the right temperament and personality to drive a focus investor. Never forget – there’s a difference between investment and speculation..

True investor temperament…

1. true investors are calm 2. true investors are patient 3. true investors are rational