"We have a strong preference for businesses we know. We're more likely to invest in a handful of big bets rather than spread our investment dollars around thinly." - Don Graham
Sure, Graham's talking about business investing. But we invest our time too. Are we stretched too thin?
Now that it's been two years since I changed jobs, things are more settled. Basketball coaching will consume plenty of volunteer time. Condo board will consume the rest. There's prospect for a soccer team to get some cardio, and I've been loyal to the rest of the exercise routine for over a year. That should still leave enough time to pursue other resolutions! Balance matters. Growth matters.
Showing posts with label The Warren Buffett Way. Show all posts
Showing posts with label The Warren Buffett Way. Show all posts
Saturday, September 25, 2010
Bunch Of Investment Stuff
Look away, audience... this is where I'm storing personal notes about Buffett's investment strategy for future reference. Not funny, not witty, just a bit inspired.
Successful investing approaches stock purchase as though buying a business, pretending as if the decision can't be undone for ten years. To do any less is to speculate, and yield to temptation of short-term price movements that belie the true future prospects of a company.
12 Tenets of Buying a Business
1. The business should be simple and understandable. Cable T.V., not the human genome, you know?
2. The business should have a consistent operating history. Not a new start-up. Not wild fluctuations.
3. Favorable long-term prospects. "Franchises" are better than those in a commodity-type market.
4. Rational management. Reinvest earnings in the company. Few acquisitions of unrelated companies.
5. Candid management. Disclose each business separately, not consolidate. Disclose your mistakes too!
6. Management avoids mindless imitation of peers.
7. Focus on return on equity, not price per share. A/B, where A = operating earnings - capital gains, B = securities at cost, not market value. Little or net debt.
8. Focus on owner earnings. That is, net income + depletion, depreciation, amortization - capital expenditures.
9. Look for high profit margins. Good cost management.
10. $1 premise. Each $1 of retained earnings should create at least $1 of market value.
11. Value. Discount future anticipated cash flows at long term U.S. government bond rate, without a risk premium.
12. Attractive price. The value should be at least 25% discount to the market price.
Successful investing approaches stock purchase as though buying a business, pretending as if the decision can't be undone for ten years. To do any less is to speculate, and yield to temptation of short-term price movements that belie the true future prospects of a company.
12 Tenets of Buying a Business
1. The business should be simple and understandable. Cable T.V., not the human genome, you know?
2. The business should have a consistent operating history. Not a new start-up. Not wild fluctuations.
3. Favorable long-term prospects. "Franchises" are better than those in a commodity-type market.
4. Rational management. Reinvest earnings in the company. Few acquisitions of unrelated companies.
5. Candid management. Disclose each business separately, not consolidate. Disclose your mistakes too!
6. Management avoids mindless imitation of peers.
7. Focus on return on equity, not price per share. A/B, where A = operating earnings - capital gains, B = securities at cost, not market value. Little or net debt.
8. Focus on owner earnings. That is, net income + depletion, depreciation, amortization - capital expenditures.
9. Look for high profit margins. Good cost management.
10. $1 premise. Each $1 of retained earnings should create at least $1 of market value.
11. Value. Discount future anticipated cash flows at long term U.S. government bond rate, without a risk premium.
12. Attractive price. The value should be at least 25% discount to the market price.
Sunday, September 19, 2010
The Priceless Past
"If history books were the key to riches, the Forbes 400 would consist of librarians." - Warren Buffett
In the stock market, price is important to many people. The news report every evening highlights the performance of the Dow Jones Industrial Average and the Standard & Poor's 500 that day. But maturity in the market, as in life, places little value on the fluctuations of a single day. On Friday I was pretty weary in the afternoon, and less productive than I am on my best days. Did my value as an employee drop? Naw, just needed a bit of extra rest. This weekend I found a burst and got some catch-up work done as a result.
The failures of the past and the present don't have to be indicative of who we become. Our destiny for success depends on us seeing it, rather than some false projection from the miscues of the recent past. Our mood, like those of the fickle market, will surge again soon.
In the stock market, price is important to many people. The news report every evening highlights the performance of the Dow Jones Industrial Average and the Standard & Poor's 500 that day. But maturity in the market, as in life, places little value on the fluctuations of a single day. On Friday I was pretty weary in the afternoon, and less productive than I am on my best days. Did my value as an employee drop? Naw, just needed a bit of extra rest. This weekend I found a burst and got some catch-up work done as a result.
The failures of the past and the present don't have to be indicative of who we become. Our destiny for success depends on us seeing it, rather than some false projection from the miscues of the recent past. Our mood, like those of the fickle market, will surge again soon.
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