More on this book
Community
Kindle Notes & Highlights
the stock market moves in the short term due to emotions and in the long term due to value.
“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
this bubble popped and the situation corrected once price and value had no sustainable relationship to each other.
always remember that it is seldom a poor decision to buy something for $5.00 when it’s actually worth $10.00.
In order for value investing to work, you must remove the time element that often dictates impulsive decisions. The best way to remove this impulse is to increase your level of knowledge.
Well, most people would rather rely on the promise of getting rich tomorrow than the certainty of getting rich in twenty to thirty years.
the difference between interest rates creates a disparity between price and value. This disparity is where an investor makes money—especially in the stock market.
there’s a big difference between price and value, and interest rates are the key ingredient to their disparity. Determining this difference will be the ultimate key to your success.
Debt is like stepping on the accelerator in your car. If the road ahead is smooth, you will get there faster. But if you find sharp curves or bumps in the road, you will quickly find yourself in trouble.
A low current ratio may mean that the company has problems meeting their short-term obligations, while a higher current ratio may indicate bad money management due to an inability to collect payment from vendors.
ROE is extremely important because it demonstrates the effectiveness of management’s ability to reinvest your profits in the business.
Or, in other words, manage risk first (i.e., D/E), then consider the remaining choices based on yield (i.e., ROE).
A debt-to-equity ratio of below 0.5 is preferred. Debt can disrupt even the best businesses because it limits flexibility and agility.
To maintain flexibility, you should also make sure that you are getting more cash in than what is going out. This can be measured by the current ratio, which should be at least 1.5.
Vigilant leaders also aim to make a decent return on equity (ROE). Above 8% consistently over a period of ten years is a str...
This highlight has been truncated due to consecutive passage length restrictions.
Management is your agent. Their one and only task is to give you the most value for your invested capital. Make sure that they have the ap...
This highlight has been truncated due to consecutive passage length restrictions.
“Will the Internet change the way we use the product?”
When considering a new investment, you should aim to easily determine whether technology will significantly change the demand or use of the product.
If you understand the company, you will understand the fundamentals that drive the profit, thereby also understanding the company’s competitive edge.
This is extremely important: If the company retains earnings (reflected in book value growth), there should be a corresponding growth in future earnings (reflected in EPS growth).
if you cannot see a company’s moat, there are two reasons: the first is because it is not there; the second is that you do not sufficiently understand the company.
By only investing in companies with a durable competitive advantage, you also reduce long-term risks. A moat can come in the form of intangibles, low-cost structures, and high switching costs (or stickiness).
The margin of safety is the difference between the share price and the intrinsic value.
buy stocks with a P/E ratio below 15—or, in other words, the return should at the very least be 6.67% (which is 1/15) annually.
find companies that had a P/B ratio of below 1.5 as a threshold for indicating value.
Warren Buffett’s opinion is that no investment should yield a lower return than a federally issued bond.
free cash flow as the profit that can be paid to the owners without negatively impacting future performance.
the intrinsic value is completely dependent on the return you seek.
you’ll want to find companies that have demonstrated the ability to have stable and predictable Returns on Equity (ROE).
A price/earnings ratio below 15 is a rule of thumb and starting point to finding decently priced stocks.
A price/book value below 1.5 is a rule of thumb and starting point for reducing your exposure to risk.
treasury bond can be used as a ruler, or benchmark, for quantifying the value of stocks. Specifically, it can be used as a discount rate so stocks can be priced in a manner that’s compared to a zero risk investment.
the cash flow statement starts with the bottom line of the income statement (net income), and ends with the top line of the Balance sheet (Cash and Cash Equivalents).
As seen in the cash flow statement above, the working capital is -$832. That means that $832 less is tied up in the daily operations of the business than the previous year. That is good! Working capital is expensive, so we want to limit it.
you need to look at the cash flow from operating activities and ensure it’s the primary pump for the company’s cash flow.
nothing spells trouble faster than a company that continually raises cash outside of the company’s operating activities.
There are rare occasions when you will find this line to be positive; this means that the company has sold more of its assets than it has invested. In general, you should be very cautious when you see this. While cash may be nice to have today, companies may find themselves short-handed if the funds aren’t used to purchase more valuable assets or service expensive debt.
Since the company is using the owners’ money to buy back shares, a share repurchase is only more profitable for the shareholder, at a reasonable price.
if a company’s payout ratio (dividend rate / EPS) is higher than 50%-60%, the company might be inhibiting their ability over the long haul to pay owners and still meet the demands of the company’s competition.
This is important: if you notice that a company’s operating cash flow is negative (line 6) and this issuance/payment of debt (line 15) is positive, you’re looking at a company that’s in serious trouble. This means the company’s product isn’t making a profit and management is borrowing money to stay afloat.
you should be looking for companies that have a consistent free-cash-flow-to-revenue ratio of at least 5%.
Companies that fail to reinvest in their business often have short-term life cycles.
The silver lining really depends on whether there are cash investments for growing the business or cash outlays for maintaining the existing business.
