Now i am searching for my next investment book, most probably will get it this weekend.
Below are some key points i learnt from the book and i think it is better for me to list them down to remind myself:
(1) Warren Buffet teaches investors that the power of compounded interest is unmatched by any other factor in the production of wealth through investment. Compounding over a life-long investment program is your best strategy, bar none. The two determining factors of the ultimate result of compounding program are: (1) the annual average rate of gain and (2) time.
(2) Investing requires much of our energy & efforts into it, if we are not interested, unable, or unwilling to dedicate the time and efforts to our investments, we should buy index.
(3) Three type of Investment of Warren Buffet:
(3.1) The General:
The principle of investing in company are investing largely focused on purchase securities at price less than the intrinsic value as determined by careful analysis, with particular emphasis on purchase of the securities less than their liquidating value.
An appraisal of a company can be derived of either the value of the company: [1] assets & [2] earnings power.
While principles never change, methods can be applied differently depending on given investing environment.
The principle of investing in company are investing largely focused on purchase securities at price less than the intrinsic value as determined by careful analysis, with particular emphasis on purchase of the securities less than their liquidating value.
An appraisal of a company can be derived of either the value of the company: [1] assets & [2] earnings power.
While principles never change, methods can be applied differently depending on given investing environment.
Basically there are 3 methods used by Warren Buffet during his Partnership era:
[1] The first method is investing with net-net and ultra-cheap stocks based on quantitative approach.
[2] The second method is investing in companies which are not statically cheap based on quantitative approach but has a tremendous amount of future earnings power.
[3] The third method is investing in companies which are able to provide high returns of earning, business which are great, enduring and sustainable business model that enables their earnings to be compounded over the years.
[1] The first method is investing with net-net and ultra-cheap stocks based on quantitative approach.
[2] The second method is investing in companies which are not statically cheap based on quantitative approach but has a tremendous amount of future earnings power.
[3] The third method is investing in companies which are able to provide high returns of earning, business which are great, enduring and sustainable business model that enables their earnings to be compounded over the years.
(3.2) Workout: more commonly known as merger arb or risk arb- which involves bets on the likelihood that an announcement transaction (usually one company buying another) will actually close.
(3.3) Controls: Investment is more intelligent when it is most businesslike and business is most intelligent when it's more investment-like. Buying a stock is like buying a business which either discounted to its intrinsic value or earnings power. The continuing of buying part of the businesses through purchasing of the businesses stock at discounted price until we own a majority of the businesses then we become the majority of the shareholders (Controls).
(4) Investing in stock should be done with Conservatism and not Conventional.
Good results in investing come primarily from a properly calibrated balance of hubris and humility:
(3.3) Controls: Investment is more intelligent when it is most businesslike and business is most intelligent when it's more investment-like. Buying a stock is like buying a business which either discounted to its intrinsic value or earnings power. The continuing of buying part of the businesses through purchasing of the businesses stock at discounted price until we own a majority of the businesses then we become the majority of the shareholders (Controls).
(4) Investing in stock should be done with Conservatism and not Conventional.
Good results in investing come primarily from a properly calibrated balance of hubris and humility:
1. Hubris enough to think we can have insights that are superior to the collective wisdom of the market and
2. Humility enough to know the limit of our abilities and to be willing to change course when errors are recognized.
We will have to evaluate facts and circumstances, apply logic and reason to find hypothesis, and then act when the facts line up, irrespective of whether the crowd agrees or disagrees with our conclusions.
(5) Concentrating portfolio within our circle of competence can produce the best result.
Concentrating vs Diversification: Better to be roughly right than precisely wrong.
(6) If we can identify 6 wonderful businesses, that is all the diversification we need. And we will make a lot of money. Going into the 7th business instead of putting more money into the 1st business is going to be a terrible mistake.
(7) " I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a "New Era" philosophy where trees really do grow to the sky" - Warren Buffet on February, 1960.
(8) We should be looking for the management with 3 things: intelligence, energy, and integrity. Integrity is what counts first. If someone does not have integrity, we want them to be dumb and lazy.
(9) "So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decision" Warren Buffet, 1967.
2. Humility enough to know the limit of our abilities and to be willing to change course when errors are recognized.
We will have to evaluate facts and circumstances, apply logic and reason to find hypothesis, and then act when the facts line up, irrespective of whether the crowd agrees or disagrees with our conclusions.
(5) Concentrating portfolio within our circle of competence can produce the best result.
Concentrating vs Diversification: Better to be roughly right than precisely wrong.
(6) If we can identify 6 wonderful businesses, that is all the diversification we need. And we will make a lot of money. Going into the 7th business instead of putting more money into the 1st business is going to be a terrible mistake.
(7) " I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a "New Era" philosophy where trees really do grow to the sky" - Warren Buffet on February, 1960.
(8) We should be looking for the management with 3 things: intelligence, energy, and integrity. Integrity is what counts first. If someone does not have integrity, we want them to be dumb and lazy.
(9) "So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decision" Warren Buffet, 1967.
