Value Investing
Value Investing

Value Investing

however, his level of risk was extremely small in comparison with his potential rate of return. (Location 1178)

is the ability to correctly perform basic math and probability. (Location 1183)

new venture because of the low risk-high reward-high probability profile of Microsoft. If you (Location 1185)

Here is a simple blueprint for wealth generation: 1)     Strive to be the best at what you do; 2)     Save by spending less than you earn; 3)     Invest in High Quality Businesses for the long-term; 4)     REPEAT (Location 1230)

BOTTOM LINE: Being nice to people, doing the right thing, and providing value to peoples’ lives will ALWAYS pay the biggest dividends. As Guy says, “so much of what’s good in my life is from the compounding of human goodwill.” (Location 1268)

As Charlie Munger says, "There is nothing more counterproductive than envy. Someone in the world will always be better than you. Of all the sins, envy is easily the worst, because you can't even have any fun with it. It's a total net loss." (Location 1285)

valuation, free cash flow, growth, underlying business fundamentals. I had no plan, and I did not have a sound process. It’s the main reason I failed early on in investing. (Location 1381)

Think about risk before return, Approach investing with a contrarian streak, Stick with a long-term approach to investing, Use the “few, big and infrequent bets” method for investing, and Understand that the underlying businesses will dictate investment, not the macro picture. (Location 1392)

They think about risk before ever contemplating return. (Location 1422)

1st Rule of Investing: Don't lose money. 2nd Rule of Investing: Don't forget the 1st Rule. (Location 1429)

but I define risk as the probability of permanent capital loss over several years. (Location 1436)

BOTTOM LINE: Contrarians are almost always wrong initially as they suffer 'paper' losses. It’s important to not let this dissuade you from staying on course and following your system.     Stick With A Long-Term Approach To Investing…   “If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” (Location 1508)

You believe it’s a great business with enduring competitive advantages, and it’s trading at a reasonable price. (Location 1598)

If a business is truly a great investment you should have no problem purchasing as the stock price goes lower, just as you should have no problem purchasing a stock if it goes higher, as long as it is trading at a significant discount from intrinsic value. (Location 1613)

Even then, these three are highly contrarian, and have value investor mindsets, so I take these picks with a grain of salt. (Location 1696)

Value (bottom-up) investors focus on important AND knowable things. (Location 1714)

Bottom-up investors do not predict, and should never compromise their conservative approach. They normally look at tangible things, and make probabilities based on conservative financial metrics. (Location 1717)

There are just too many variables in the macro world to have a great amount of success over the long-term. (Location 1726)

how to concentrate on risk before return; how we must have a contrarian streak in order to outperform the market; the importance of having a long-term approach to investing; that few, big and infrequent bets can best lead to outperformance; and how we must remain agnostic of the macro picture to be successful. (Location 1736)

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. (Location 1811)

ourselves is, does the business have a sustainable competitive advantage? (Location 1826)

Essentially there are five main types of competitive advantages: 1. Intangible assets 2. Tangible assets 3. Cost advantage 4. Customer switching costs (Location 1878)

5. Network economics. (Location 1882)

Pat Dorsey (Dorsey Asset Management) has done a tremendous amount of work on competitive advantages so he deserves the hat tip on this one. (Location 1883)

We want businesses that have stable industry characteristics and high barriers to entry, such as railroads, beverage producers, and banks. (Location 2011)

The point is to find a competitive advantage that gives you a leg up on your competition. Once that competitive advantage is known, focus on growing that advantage (as well as finding new ones). Never stop learning and providing value to others. (Location 2028)

1)     Service businesses (high quality w/ high switching costs) 2)     Franchisors 3)     Subscription based businesses 4)     Razor/razor-blade type businesses (Location 2118)

We will focus our attention and energy to high margin, high return businesses. (Location 2158)

We define catalysts in 5 main categories in order of importance:   Future growth in the underlying business Future growth in the industry Management catalysts Business catalysts Supply/Demand catalysts (Location 2247)

The ability of a company to continue to produce excess profitability over the next 10-20 years, and beyond, increases the business’s intrinsic value that much more. (Location 2273)

In fact, I am willing to make a wager that the bulk of your investment gains in your entire life will come from less than 5 businesses. (Location 2276)

This is why we still want to purchase the growth in these businesses with a margin of safety. (Location 2281)

You must never be afraid of paying a reasonable price for a high quality business. Time is the friend of high quality businesses. (Location 2284)

Testing, research and development are essential parts of a great business that wants to continue to get better. Keeping a constant eye on R&D expenses as a percentage of sales can give you a good idea of the culture. (Location 2302)

they consistently spend over 10% of their revenues on R&D to improve their products, user experience, and develop new products. This kind of R&D spend as a portion of revenue makes it very difficult for other players to compete. (Location 2305)

increase the quality and value of its products and/or services will produce competitive advantages for that business over time. In fact, Google controls more than 65% of its main business segment, making them the largest global search engine player in the world by a staggering margin. (Location 2309)

Remember: most new product launches fail. For every new successful iPhone or iPad launch, there are 10 or more that failed miserably. (Location 2327)

It doesn’t take a genius to realize, if a business is changing its business model, there’s likely to be some troubles ahead. (Location 2363)

This is a sneaky and subtle signal of limited or slowing growth. (Location 2380)

It’s also interesting to pay attention to businesses that initiate dividends for the first time after a tremendous period of growth. (Location 2386)

Of course once the dust settled, this was still a very high quality, GROWING business. It just wasn’t growing at the rapid rate it once was in the past. This, coupled with changes in future leadership at Apple, created a sense of uncertainty in the stock even as the business continued to grow. (Location 2394)

The best businesses will be able to balance reinvestment opportunities with a stable dividend payout ratio. (Location 2400)

"I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” (Location 2415)

Great managers matter in commodity-type businesses. This is an important concept to be aware of when investing in a business with new and unproven management teams. (Location 2430)

In DirecTV's case, we know that the satellite TV market is a very capital intensive business with only a hand-full of competitors to DirecTV (Comcast, AT&T, Dish). (Location 2464)

This question (however basic and simple) forces you to see the bigger picture. It will help you visualize the future landscape of the business and how it may (or may not) be likely to change over time. (Location 2503)

You need to always be aware, and consider diligently, the sustainability of growth strategies that are merely deal-driven (M&A). Another strategy to help differentiate quickly whether a business is overly acquisitive, is by comparing the total goodwill plus intangibles to total assets from the most recent quarter. A firm that (Location 2584)

Rapidly growing businesses that take on excessive debt for the sake of growth are prone to substantial financial risk (especially in cyclical businesses near cyclical tops). They just don’t know it at the time. (Location 2613)

Your business will only go as far as the systems, and structures you have in place to help scale the business. (Location 2626)

Opening a set amount of stores over the short-to-intermediate term Hitting certain revenue and net income growth rates Expanding into international markets (Location 2651)

And they took 10 YEARS to find the right location for their first store in San Francisco. (Location 2679)

They develop their management teams from within the company. They don’t hire outside management, and they never want to grow too fast outside their management teams. (Location 2682)

Amazon is relentlessly increasing its maintenance and growth Capex to capture market share as quickly as possible. (Location 2712)

They have a window to not only acquire market share, but push others out of the market with their low cost, incredibly efficient model. The only (Location 2715)

A business that is able to grow organically through its own cash flows puts itself in a very strong financial position. This is especially important in a world that is very dependent on debt. (Location 2722)

Organic growth is a more stable and sustainable form of growth, so we always want to be on the lookout for these types of businesses. The businesses that are able (Location 2726)

Number of days that inventory is outstanding (DIO) +Number of days that sales are outstanding (DSO) –Number of days that payables are outstanding (DPO) (Location 2740)

cash-conversion cycle (CCC). (Location 2747)

Historically, the railroad industry, the airline industry and the internet industry all had periods of investor euphoria, even while the industry as a whole produced no ‘real’ earnings and straddled themselves in debt. (Location 2805)

“Why can’t a business do both: produce growth in revenue, while showing they can be profitable, as well?” (Location 2809)

For example, let’s say you pay up and purchase a business at a P/E ratio of 25 that earns $1 per share. If the company doubles its earnings to $2 per share, you essentially only paid 12.5 times earnings for next year. (Location 2831)

an opportunity in a high quality, recurring revenue business with an earnings yield of over 15%, and very little risk on the balance sheet. (Location 2865)

their slower growing competitors (avg growth of 26%). (Location 2888)

There are great advantages to being the “early bird” or “top dog” of any industry-wide growth phase. (Location 2898)

Change from negative to positive FCF Increase in FCF Increase in profit margins Increase in revenue Improving efficiency ratios (CCC, DSO, DPO, DSI, ) (Location 2977)

he would essentially use it as a currency to acquire generally sound businesses selling at low earnings multiples. (Location 3640)

Shrinking -- à la Teledyne -- still isn't done except by a handful of shrewd entrepreneurial companies." (Location 3648)

"I have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections, but we care very much about, and look very deeply at, track records. If a company has a lousy track record, but a very bright future, we will miss the opportunity..." Warren Buffett (Location 3690)

*It’s important to note that these bets were correct over the long term. However, leverage doesn’t give you the ability to be patient. Impatience and excessive risk taking (with leverage) aren’t qualities an investor looks for in top-tier managers. (Location 3707)

The smartest person in the world doesn't mean a great deal to an investor if he/she isn't able to convert that intelligence into returns. It is essential that you ascertain the track record of management to determine whether they will be able to continue in the success of the business. In Corzine’s case, there (Location 3715)

These managers typically delegate the day-to-day operations to a Chief Operating Officer (COO). This (Location 3836)

As seen by Henry Singleton and the Teledyne example, opportunistic stock repurchases on undervalued stocks can add incredible value to the business over time. (Location 3943)

For example, Berkshire Hathaway rarely initiates stock buybacks because it uses cash to purchase other business with better long-term potential. (Location 3974)

“We look them in the eyes and ask, ‘Do they love the business of the money?” Warren Buffett (Location 4069)

However, what comes to mind the most is they will do whatever it takes for the business to succeed long-term (Location 4080)

If trained properly, these managers know what’s best for that store location, rather than the executive team that is located 1,000s of miles away (and in many cases, disconnected from the actual customers). (Location 4238)

“There has never been a master plan. Anyone who wanted to do it, we fired because it takes on a life of its own and doesn’t cover new reality. We want people taking into account new information.” Charlie Munger   What’s so wrong with master plans you ask? (Location 4278)

“Our main business is not to see what lies dimly in the distance but to do what lies clearly at hand.” (Location 4298)

Master plans fail because when opportunity presents itself, and it doesn’t fit with the strategic vision of the company, then it is disregarded as “non-strategic.” (Location 4303)

If you hire somebody without [integrity], you really want them to be dumb and lazy.” (Location 4351)

If you cannot understand a business or have a difficult time valuing it, then walk away. Throw it in the garbage bin, and move (Location 4440)

The best you can do is carefully and conservatively value securities if you are to truly achieve a margin of safety over the long-term. (Location 4521)

There’s Always Something to Do, talks openly about investing in securities with hidden assets. His approach intrigued me greatly, and I highly recommend the book. (Location 4560)

That is why I focus only on things that are IMPORTANT AND KNOWABLE. (Location 4858)

sustainable competitive advantages, recurring revenue stream, high FCF, high ROIC, reasonable debt load, great management, and hopefully trading under liquidation value. (Location 4919)

It’s interesting to note: This type of calculation by a legendary investor like Graham, goes to show you how difficult it is calculate a business’s intrinsic value correctly. (Location 4994)

If you believe the business has ongoing business characteristics, you may be onto a tremendous investment opportunity with very little downside risk. (Location 5288)

Cash ------------------------- 95% Marketable Securities ---- 90% Receivables ---------------- 75% Inventory------------------- 25% (Location 5303)

If you consistently purchase stocks of businesses trading below liquidation value, you give yourself an incredible margin of safety with very little risk of permanent loss. (Location 5362)

It was also beginning to produce FCF, and seemed to have no threat of bankruptcy in the immediate future (operations seemed to be turning around). (Location 5383)

They owned almost 50% of a sizable 3.5 million square foot furniture showroom that was actually being carried on the books as a $7 million liability (and that’s why you don’t always trust GAAP accounting). (Location 5394)

"It's not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for." Robert Kiyosaki (Location 5483)

Over time, I have learned that great investors tend to focus on the process more than the actual outcome. (Location 5607)