Never mortgaged, never borrowed for car
He never had a mortgage, never borrowed to buy a car, and always had enough savings to live through a tough time.
Bargain hunting—a pervasive life philosophy
Bargain hunting does not have to apply to investment only. “Searching for the best deal is a lifestyle.
Opportunity: Where outlook is miserable
“People are always asking me where the outlook is good, but that’s the wrong question. The right question is: Where is the outlook most miserable?”
Independent Thinking
“To buy something unpopular, you must be independent-minded and capable of relying on your own judgment.”
P/S,P/E,P/B – Valuation Metrics
You have to look at all valuation metrics. If you see a valuation higher than the competitors, you are seeing a popular stock.
If you just choose the bottom ten percent of the stock from a valuation perspective, you will be increasing your chances of profit.
See how industry is changing
Understand the industry and make sure your company’s product/service will not be obsolete in the near future.
Stock is down—is the problem fixable? Volatility is your friend
You have to learn to use volatility as a friend.
Reflect when you are successful
“The time to reflect on your investing methods is when you are most successful.
Business in risky countries
Observe which countries your company’s top 25% revenue is coming from. You want it to come from countries which has net export higher than imports.
Healthy savings + Tireless work ethics
That recipe of heavy saving and a tireless work ethic was part of John Templeton’s success.
Benefit from negative biases
Understand when people are having negative biases about a company, industry and get away from reality and use that for your investment strategy.
Be ready to sell/change if you are wrong
Be ready to change your mind. As Warren Buffet once said, “It’s better to look stupid than go broke.”
Never pay too much
People seem to stop thinking about valuation when there is good growth. You never want to pay too much for a stock.
On selling stocks
When to sell: “when you have found a much better stock.”
Purchase a replacement only when you have found a stock that is 50 percent better.
Focus on future and not on past
This idea is embedded in the notion that focusing on the future is more important than focusing on the past.
Wait till 99% have given up
His advice was “to wait until the ninety-ninth person out of a hundred gives up.”
Research company competitor
Keep an eye on the company’s competition. Most good information comes from your company’s competitor.
Definition of Enterprise Value: Price to buy
The enterprise value of a firm is simply the stock market equity value of the company plus the amount of debt the company has minus the amount of cash the company carries on the balance sheet. The idea behind the ratio in this use is to get an idea of what a company would cost to purchase in its entirety.
Stock repurchase = when P/E is low
When company repurchases, it usually means that the management thinks that stock is undervalued and can give a good entry point for investors.
Share buyback is better than giving dividend because of tax
Investors prefer share repurchase to dividends because receiving a dividend payment is a taxable event, and some of the money is wasted in the form of tax payments to the government.
Turn more rocks
Adopt a mentality that you will examine stocks that others will not.
Be quantitative
Rely on quantitative reasoning versus qualitative reasoning.
Always have cash
“The market can stay irrational longer than you can stay solvent.”
Never buy IPOs
An old rule of thumb is to not buy IPOs. It’s seldom a bargain.
Keep a wish list of stocks
Always keep a “wish list” of securities representing companies that you beleive is good but priced too high in the market.
Debt/Equity
Debt-to-equity ratio = short-term debt + long-term debt ÷ shareholder’s equity. Avoid company that owes more than what they are worth.
PEG<1
assumptions that we applied to China Mobile in 2004 (a P/E based on the current year’s EPS of 11x and the assumption of a long-term growth rate in EPS of 20 percent) and extend those relationships out into time, we arrive at a calculated P/E ratio of 1.8x year 10 EPS (current price in 2004 divided by estimated EPS in year 10). Looking at a stock with this long-term perspective is challenging, but the results can be rewarding (see Figure 10.6
Economics 101 – which companies have moat?
Profit attracts competition and competition squeezes profit so you have to look for companies that can keep its market position – the idea od MOAT.
Leave a Reply