Investment principal & checklist from great investor

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

Charlie munger " ultra - simple genral notions.

  1. Solve the big no brainer questions first
  2. Use Math to support your reasoning.
  3. Think through a problem backward, not just forward.
  4. Use a multidisciplinary approach
    5.Properly consider results from a combination of factors, or lollapalooza effect.


. Is the bussiness simple & understandable ?
. Does the bussiness have constant operating history?
.Does the bussiness have favourable long term prosepects ?

.Is management rational ?
. Is management candid with its shareholders?
.Does the management resist the institutional imperative?

.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.

.What is the value of business?
. Can the business be purchased at a significant discount from its value ?

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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  1. Don’t buy into promotional companies
  2. Don’t ignore a good stock just because it trades " over the counter’
  3. Don’t buy a stock just because you like the "tone " of it’s annual report
  4. 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
  5. 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.
  6. Don’t fail to consider time as well as price in buying a true growth stock
  7. Don’t follow the crowd
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  1. 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

  1. 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