Seth klarman’s thought on risk
. Foremost principal of operations is always maintain a high degree of risk aversion.
.Rule#1 : Don’t loose money . Rule #2 Don’t forget Rule #1
. Limit bets only those situations which have a probability of winning that is well above 50% & in which the downside is limited.
.Cash is the ultimate risk aversion
.using Beta & volatility to measure risk is nonsense
. Average down - as stock fall ,the risk is lower
.Targeting investment return shifts the focus from downside risk to potential upside.
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#“Becoming A Portfolio Manager Who Hits .” ( BUFFETT)
.Think of stock as [ fractional shares of] business.
.Increase the size of your investment
.Reduce portfolio turnover
. Develop alternative performance benchmark
.Learn to think in probability
.Recognise the psychology of misjudgement
.Ignore market forecast
.Wait for fat pitch
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Charlie munger " ultra - simple genral notions.
- Solve the big no brainer questions first
- Use Math to support your reasoning.
- Think through a problem backward, not just forward.
- Use a multidisciplinary approach
5.Properly consider results from a combination of factors, or lollapalooza effect.
“TENETS OF THE WARREN BUFFETT”
BUSINESS TENETS
. Is the bussiness simple & understandable ?
. Does the bussiness have constant operating history?
.Does the bussiness have favourable long term prosepects ?
MANAGEMENT TENETS
.Is management rational ?
. Is management candid with its shareholders?
.Does the management resist the institutional imperative?
FINANCIAL TENETS
.Focus on return on equity, not earning per share
.Calculate " owner earning"
. Look for company for high profits margin
. For every dollar ratained , make sure the company has created at least one dollar of market value.
MARKET TENET
.What is the value of business?
. Can the business be purchased at a significant discount from its value ?
#PHIL FISHER’S 15 QUESTION
1)Does the company have product or service with sufficient market potential to make possible a sizeable increase in sales for at least several years ?
2)Does the management have a determination to continue to develop product or process that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited ?
3)how effective are the company R&D Efforts in relation to its size ?
4)Does the company company have an above avg sales organisation?
5)Does the company have. A worthwhile profit margin?
6)Does the company doing to maintain or profit margin?
7) Does the company have outstanding personal & labour relations?
8)Does the company have outstanding executive relationship?
9)Does the company have depth to its management?
10)How good are the company cost analysis & accounting controls ?
11) Are there are other aspects of the business, somewhat peculiar to the industry involved , which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12) Does the company have a short range or long range outlook in regards to profits
13)In the foreseeable future will the growth of the company requires sufficient equity financing so that large numbers of shares then outstanding will largely cancel the existing stockholders benefits from the anticipated growth?
14) Does the management telk freely to investor about its affairs when things are going well but " clam up " when trouble & disappointment occurred?
15)Does the company have a management of unquestionable integrity ?
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#PHIL FISHER 10 DON’T
- Don’t buy into promotional companies
- Don’t ignore a good stock just because it trades " over the counter’
- Don’t buy a stock just because you like the "tone " of it’s annual report
- Don’t assume that the high price at which a stock may be selling in relation to earning is necessary an indication that further growth in those earning has largely been already discounted at the price
5)Don’t quibble over eight & nine quarter - Don’t overstress diversification
7)Don’t be afraid to buy on war scare
8)Don’t forget your Gilbert & Sullivan : Don’t be influenced by what doesn’t matter. - Don’t fail to consider time as well as price in buying a true growth stock
- Don’t follow the crowd
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#J.M KEYNEYS POLICY REPORT FOR YHE CHEST FUND, OUTLINING HIS INVESTMENT PRINCIPLE
- A careful selection of a few investment having regards thier cheapness in relation to thier probably & actual & potential intrinsic value over a period of years ahead and in relation to alternative investment at the time .
2.A steady fast holding of these fairly lagre units through thick and thin, perhaps for several years ,untill either have fulfilled thier promise or it’s evident that they were purchased on a mistake.
3.A balanced investment position that’s a variety of risks in spite of individuals holding being large ,& if possible opposed risk.
Porters five forces
- Threat of new competition
Barrier to entry: Economic is scale, product differentian , capital requirements, switching cost , distribution channel,cost advantage, technology/IP, access to material
2)Threat of substitution
Most vulnerable,price based competition high profits industries
3)Customer bargaining power.
Most powerful customer, concentrated buyers , standardized products,low switching cost ,buyer has full information.
4)Supplier bargaining power
Most powerful supplier ,few alternative,credible threat of forward integration.
5)Competitive rivalry
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Thought on idea generation ( Feltzin & albert of Sheffield Asset Mgmt).
What happened to make the stock hated or neglected?
Is it temporary or permanent problem?
Have we identified material change that will cause fundamentals ro improve?
How capable is management?
How sound is balanced sheet ?
Do we have a differentiated view on earning?
Life lessons & checklist items from buffet & munger ( paraphrased by Scott Dinsmore).
Lose money for the firm & I will be understanding. Lose a shred of reputation & I eill be ruthless
Choose the best who will have you, Time & relationship are precious. Aim high & don’t accept anyone who doesn’t make you better.
it’s a mistake to think that rationality will always hold up , even in able people ( see Sokol, David )
You can always tell a man to go to hell tommorow, if it’s still good idea .
Don’t worry about occasionally failure - it happens
You can be cheerful even when things are deteriorating,Be rationality optimistic
Continuous learning is absolutely required to have any significant success in the world.Go to be little wiser than you woke up.
Own a Business that requires very little capital to grow
Don’t be too much in Rush
Conduct yourself in life so other people trust you. It helps even more if they are right to trust you.
Think about how you want to be remembered & act accordingly
Reduce expectations is the best line of defence as investor has
the problem with rules is that people break them
There are no grays area when it comes to integrity
It’s more enjoyable to create partnership with people you like & trust in order to do meaningful things than try to outsmart people out of
money
learn to communicate
Send letter to people you respect
Never trade something you have & need for something you don’t have & don’t need , even if you really want it ,
Greed & envy are very dangerous.
Commonmentalmistake ( TILSON)
~. Overconfidence
~ Projecting the immediate past into the distant future.
~herd like behaviour ( social proof) , driven by a desire to be part of crowd or an assumption that the crowd is omniscient
~misunderstanding randomness;seeing patterns that don’t exist
~commitment & consistent bias
~Fear of Change, resulting in a strong bias for the status quo
~“Anchoring” on irrelevant data
~Excessive aversion to loss
~using mental accounting to treat some money differently than other money
~.Allowing emotional connection to over ride season
~.fear of uncertainty.
~ Embrace certainty
~. Overestimating the likelihood of certain events based on very memorable data or experience.
~. Becoming paralysed by information overload
~. Failing to act due to an abundance of attractive option
~. Fear of making an incorrect decision & feeling stupid ( regret aversion)
~. Ignoring important data points & Focusing excessively on less important ones ; drawing conclusion from a limited sample size
~. Reluctant to admit mistake
~ Overestimate the degree to which on would have predicted the correct outcome ( hindsight bias)
~. Believing that one investment success is due to wisdom rather than rising market,but failure are not ones fault
~. Failing to accurately assess ones investment Tom horizon
~ Tendency to seek only information that confirm ones opinion or decision
~ Failing to recognise the large cumulative impact of small amount over time
~Forgetting the powerful tendency of regression to the mean
~. Confusing familiarity with knowledge.
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