Thanks Donald,
Your guidance is invaluable. I have learnt a lot from this site. Not many people would share their knowledge this freely.
My respect for You is only growing.
I know you don’t like it but I have mostly been a silent reader of this wonderful site for last 2-3 years. Still a lot of cobweb remains and i am yet to learn so much.
I will not write much as I know my words will never convey enough. Thanks
Regards,
Thanks Vivek for your kind words.
We have not been able to incentivise folks/new learners at VP to ask. Most find the “high-quality” of discussions a bit intimidating perhaps.
But I have learnt only by asking - after doing the best that I could at that time on the stock. It’s Ayush and Hitesh and Mr D and Mr M and countless others who have really taught me to go further in my quest. And yes, I was never ashamed at admitting what I didn’t know - by admitting that, I made sure I will learn tomorrow or the day after.
First take the job seriously - work hard at mastering 1 business slowly. Take 3-6 months if need be. Then ask, ask & ask. Also as you learn and find what you are best at, learn to identify folks who are better at Accounting details, are better at finding what’s wrong in the BS & P&L and CFlow and what doesn’t add up, find guys who are better at digging info out on the business/industry or competition, find the guys who are always with a fresh idea - make the most of the community!!
While we have been lucky to enable a good discussion and dissection culture at VP perhaps, we have not been as lucky in nurturing the questioning learner.
You should speak up for your own good:). Wake up call for all lurkers!
Great thread… I wish I had the sagacity to ask such questions when I started off. Here are some of the things I have learnt which I wish I knew (or someone told me) when I was getting started.
It is very important to understand that investing is for the long term. Typically serious investors spend upwards of 30 years in the markets and the focus needs to be very very firmly on compounding at a decent rate.
One has to be convinced - completely convinced - that equity is the best asset class over the long term.The reason this is important is that I have seen a lot of people join the markets in good times and then get scared away when there is a bear phase. This conviction will help tide over the tough times.
Read, read, read. As much as possible. Start with good books. Move to annual reports, trade journals, good blogs, magazines …
First enrich your circle of competence and then enlarge it. As Donald suggested, do a PhD on one company to start with. Pick a sector which you are comfortable with. Then once done, slowly start with looking at other stocks in the same industry. Initially, have a small number of stocks to follow - say 5.
Try and keep away from excel (other than doing basic calculations). Excel has a way of messing up one’s thought process by creating a sense of false precision and knowledge.
Always, remember one thing - **No one knows what will happen tomorrow. No one. **So diversify adequately. Don’t follow others blindly. Do your own study. Build your own conviction.
Don’t try to get rich quickly. There is a saying in Wall Street, that the first 10 years you spend to learn, the next 10 to make money and the 3rd ten to manage the money you have made. So, take your time. Learn the business of investing (and it is a business).
I have seen a lot of people doing DCF using 10 year with EPS growth rates of 15% 20% etc…and deriving the margin of safety to be X%.
What I don’t understand is that why do they consider 10 years. If they change that to 5 or 15 years, the same stock becomes cheap or overvalued in that instant. I find this method to be insane.
I want your opinion on this view. Please tell how I am wrong.
Also I would love to know how to properly value a company. I am not able to value any company.
@JESWIN you have pointed out how we tend to rationalize valuations instead of arriving at a rational value 
In my view you are right.
Warren Buffett defined the intrinsic value in the 1998 letter - “Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life”
Every business either generates or consumes cash if it were to just be where it is. Based on how far out you can see the business generating cash (businesses consuming cash are not worth it) and how much it generates is the value. You need to be quite sure how much it will generate for how long. As you extend into the future you become less and less sure. For the period you are absolutely sure, find the cash and make adjustments for the fact that cash loses value over time. For the period you are unsure, make an assumption (or even leave it as you safety margin) that factors your ignorance. This give you an intrinsic value. Now management may not part with the cash, may deploy it within to create or destroy value. You may have to consider that.
So, the main principle of valuation is gut feeling generated from studying the facts and deciding the future growth and lifetime of a business?
Is this why people tell valuation is an art, not science?
Think about it, if investing were formulaic, I mean if you could compute value with as much precision as sending rocket to the moon, then all of us will have the same value of any stock. There won’t be a buyer or a seller. I mean no one sensible bets on the value of 2+2.
If you say gut feeling, I am not sure because your gut can be wrong. I am not sure you can say valuation is an art, not science unless you can define art or science. Science may be objectively defined, but art?!
