In fact, if you are afraid of volatility, by all means, choose percentages. (Location 388)
First, we live much longer today and need our money for more time after we are not working. Second, if money must last longer, even a little inflation erodes the purchasing power of retirement funds much more than before. And third, the closer you are to retirement, the greater the risk a market drop presents, because you start retirement with less money to draw from. (Location 437)
The more time, the greater the range of possible outcomes. (If you are a scientist or statistician, please be kind.) (Location 480)
Most people want to make money without risk of losing any, and they’ll try just about any way to get it (Location 504)
stocks do well or poorly according to how well businesses produce excess cash and how wisely they spend it. Period. When a person asks, “I need to make money fast in the stock market. What can you do for me?” the answer should be, “Nothing, except take so much risk of loss that you are likely to lose it all!” (Location 513)
Cash is the most liquid asset, and the U.S. dollar the most liquid cash. Stock market investors must take that into account when examining their risk tolerance for swings in the value of their stocks and investment accounts. (Location 581)
Owning Tom’s Tomatoes stock, conversely, can feel like bungee jumping. This is why most people prefer the established large company stock’s relative stability, but they must also accept lower potential returns. (Location 600)
But to achieve really good relative returns, the investor must do something different than buy all the same big companies that everyone else and the indexes own. (Location 627)
Similarly, the absolute returns investor is a relative returns investor who just experienced a large drawdown. A (Location 632)
The S&P 500 and all of the benchmarks in the table are weighted by company market value, or the more common “market capitalization” or “market cap”. (Location 663)
The larger and more profitable the business, the more demand for shares, the more shares and/or higher price, the larger the market cap. Voilà, Apple has the highest market cap of any company in the world. (Location 665)
10 mega market cap companies like Apple—a mere 2% of the S&P’s 500 companies—largely determine the direction of the index. (Location 667)
If you talk to people about their saving and investing goals, the smart ones don’t care about “beating the market.” (Location 680)
All we can do is use information today to estimate our results in the unknown future. (Location 691)
What do you think you know, compared to what you really know? While we push ourselves to learn more and more, we truly know few, if any, businesses so well that we can evaluate their suitability for investment. (Location 702)
To stay within your circle of competence—to buy what you know—means to use your expertise to buy businesses you understand deeply. (Location 718)
All manias are fueled by credit, and margin is credit. All panics become crashes when the debt comes due. (Location 757)
Truth is, it would be rational if, instead of putting money in the jar, you used those savings to pay down your debt, which gives you an immediate gain in terms of your card’s interest rate. (Location 797)
Lots of investors practice mental accounting. They divide their investment cash into lower risk stocks and then take a smaller amount for “a flyer” on something sexy, speculative—fun! Fun!? (Location 803)
The more public we are with our views, the harder it is to change them, because we would look inconsistent and maybe offend those with whom we had agreed. (Location 864)
Not so for value investors such as Li father and son. It means buying cheaply or not at all. It means having the patience to wait for desperate sellers, buy from them, and hold until buyers will pay any price to take the stock off your hands. (Location 895)
Li’s father bought cheap land from British residents fleeing Hong Kong in 1967 during riots by sympathizers with Mainland China’s Cultural Revolution under Mao. (Location 905)
We think whatever is recent will continue. It can, but not indefinitely. The longer something continues to be the same, the more likely it is to change (as in Chapter 2’s “Time Wounds All Heels”). (Location 921)
Rather, they see only the recent and current environment. This is why investors tend to buy high at times of great enthusiasm—mania—and sell out at times of fear—panic and crash. They lack patience and perspective. (Location 932)
Warren Buffett says to “be fearful when others are greedy and greedy when others are fearful.” (Location 939)
It shows that how information is presented to us affects our decisions and shows framing bias, the tendency to behave differently depending on how a situation is presented to us. (Location 952)
The logarithmic chart is more accurate, showing the percentage gains. (Location 955)
When the numbers are larger, the same amount of points gained produces a smaller percentage jump. From 500 to 1,000 is 100%, but 1,000 to 1,500 is 50%. The logarithmic chart shows this with a proportional horizontal axis. (Location 970)
The moral of the story is that the prepared mind questions authority, especially when anyone presents numbers. Straighten the pictures. (Location 983)
“Such a policy will pay off eventually, regardless of when it is begun, provided that it is adhered to conscientiously and courageously under all intervening conditions.” (Location 1011)
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” (Location 1035)
Most management teams are mediocre. Business is cutthroat, so capitalism has winners and losers. (Location 1066)
Because the last and most important subject in school, shareholder yield (see below), requires consistent, sustainable and high quality cash flows, it’s crucial to measure a stock’s cash flow performance each quarter. (Location 1075)
Many investors—both individual and institutional—follow the Wall Street analysts’ stock ratings and company earnings estimates. Street analysts operate in a herd, changing estimates of future earnings based on what’s happened. (Location 1081)
The first line item on a cash flow statement is the income statement’s bottom line—net income—like the last sentence on a page that carries over to the top of the next. (Location 1186)
The cash flow grade is based on many factors. For example, how are inventory, receivables and payables impacting financial performance? (Location 1190)
Decent Earnings Quality = Operating Cash Flow − Net Income > 0 (Location 1197)
OCF margin is what percent of every dollar of revenue the company turns into cash, which can then be used to maintain and grow the business, as well as enhance shareholder yield. (Location 1203)
a company’s income statement, also statement of operations, revenue is at the top—“top line”—and earnings are at the bottom—“bottom line”. The phrase “the bottom line” elsewhere means final and authoritative, but company earnings are almost always a made up number. (Location 1232)
The firms and their analysts are poster children for confirmation bias: sheep roaming around in a herd and ultimately slaughtered together. As an analyst, it doesn’t pay to think too (Location 1274)
Deduct expenses and apply a rough cap rate range, say 8% to 12%. (Location 1363)
Price (market cap) to operating and free cash flow and enterprise value to EBITDA are easy to find online, such as at Yahoo! Finance. (Location 1429)
shareholder yield: sustainable dividends, share repurchases (buybacks) (Location 1455)
Shareholder yield removes cash from management’s hot little hands. (Location 1464)
Plus, if a company pays dividends, every share it buys back eliminates paying the dividend on that share, forever (Location 1467)
The investment strategy therefore is: (mostly) small cap stocks + cheap valuation (Test #5) + free cash flow (Test #2) + one or more of sustainable dividends, buybacks at a discount, or paying down higher interest debt. (Location 1472)
The guideline is that a company should not pay out more than 50% of its net income or free cash flow in dividends. (Location 1516)