On this blog I will chronicle my path through the value investing world. I will discuss some the holdings of my personal accounts.
Generally speaking, I look for companies/industries that are under stress or out of favour. That's where the cheap prices are, but it's also where value traps may reside. So it takes work to separate the true value from the value traps. The companies I own, generally don't make good cocktail party discussions - they are not popular. I am looking for companies that are safe and cheap.
Potential investment candidates normally include several of the following attributes or answer positively to the following questions;
Business
- Easy to understand business
- Favorable long-term prospects
- Sustainable competitive advantages ( although it's hard to find many super strong moats )
- Assets or earnings power provide a hefty margin of safety
- If the business is under a black cloud, is it a short term event or a long term sea change?
- Does the business have a slow rate of change?
Management
- Is management rational/able/honest?
- Is management candid with shareholders?
- Are they good capital allocators?
- Do they eat their own cooking? ( own a lot of stock )
Market
- What's the value of the company now, and 2-3 years out? What factors could impair a company's value?
- Can I buy the company in the market at a significant discount (50%) of its true worth?
- How fearful/pessimistic is the market towards this company/industry? Is it an over reaction?
Note: This is not a complete list. I use a 2 page checklist that covers many other items - but you get the idea.
A few other general ideas about value investing:
- Take investment bank research reports and television talking heads with a grain of salt.
- Focus on protecting the downside and the upside will take care of itself. I hate losing money.
- Like flying, you need to focus on the most important data as not to miss the key drivers.
- Good companies on sale are hard to find. The market is pretty good a pricing most companies. I may only see a few really compelling ideas per year. I don't trade much, but I read a lot.
- You can't figure out the value of a company precisely, just like you can't price your house within $10K on any given day. No computer models, just a pencil.
- A good value opportunity should "jump" off the page at you.
- Focus on your best ideas. That leads to a fairly concentrated portfolio. Usually 15-25 stocks in a portfolio.
- Longterm orientation, usually buy with a 2-3 year holding period.
- Ignore the market. The market is there to serve you, not instruct you ( Buffett )
Please note: information about any investments on this blog are for information purposes only and DO NOT constitute any recommendation to purchase such securities. Consult your financial advisor.
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