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are a deal: when there’s a recession every five to ten years, and when there’s uncertainty in an industry or company. Whenever an industry is out of favor or an Event happens, prices drop, fear builds, and sometimes really good companies go on sale for a Ten Cap price.
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This is the advantage Buffett is talking about—the mere fact that there is massive trading going on daily in the stock market makes the prices go up and down much faster and with much more volatility than ever happens in the real estate market.
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Owner Earnings is about the cold hard cash that the business is producing right now, not in some foggy future.
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As long as it will be doing better than now and we can get a Ten Cap deal, we’re good to go.
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On a typical cash flow statement, net income is the very first line, under “cash flows from operating activities.” Depreciation and amortization, which is a non-cash expense to account for the declining value of certain assets, like the depreciation of a car, is the next number down.* Still in that same section, there will be a line or a group of lines about net change in accounts receivable (A/R) and accounts payable (A/P) from the previous year. Accounts receivable is when the business is
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Over many years, I’ve found a good, solid rate of return for stocks is 15 percent per year. In other words, a 15 percent compounded return rewards me well for doing the work and taking the risk.”
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Risk Intelligence,
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“price is actually least important, because time will fix errors on a wonderful business.
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Never mess around with something
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“Here’s the important bit, though: companies are like horses—if you look deeply enough, there is something wrong with every single one of them.”
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I have to do both: try to show that it’s wonderful enough, and try to tear it down.
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Mohnish Pabrai has said he will never put in an order to buy or sell stock when the market is open so that he won’t
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you might want to buy some shares in the companies you’ve been watching for their prices to
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“No, just shares you buy to test your knowledge and emotions. Exactly like I just did.”
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“Patience and knowing what you’re buying are what separate investors from speculators.
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Even better, the companies with the biggest Moats have the highest profit margins, and can use major downturns to eliminate their weaker competition through mergers, acquisitions, price wars, and other aggressive tactics.
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We wait in cash for Events that bring the prices down; they don’t.”
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One of the most powerful is fear. We’ve talked a lot about fear.
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Believe me, buying just a little bit of a company is almost a bigger disaster than buying none.
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“I get why you don’t get too worked up when the market is moving around. If it moves downward, you know you’re going to benefit because you’re a buyer. And if it moves upward, you also benefit from the prices of your portfolio going to the moon.”
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They were on sale big-time but their stock prices were starting to move up. That’s all I needed for justification to buy. If those two stock prices had continued going down,
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If, after I bought in, the prices stopped going up and started going down more, I would have been happy too, because now I could buy more even cheaper.
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Wishlist should have two components to
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names of companies and the price at which you’ll buy them.
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‘If you are at all unsure of what to do, WAIT. Do not go ahead.’
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I want you to allocate four slices of money, or ‘tranches,’ for each company.”
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it doesn’t. Price is just what you paid. That’s all. It has nothing to do with the value.”
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“I can see the value of tranching as a psychological comfort.
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the Shiller P/E and the Buffett Indicator.”
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With real skin in the game, my perspective on the company changes. It goes from theoretical to real; some
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“Unless the Story of the company changes, you should never sell that company. This is another mistake I’ve made, because compounding depends on holding on for the long haul.
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You should have that attitude of never selling when you decide what to buy.
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“The reason is that he only sells when the Story changes.
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What makes these companies great, by definition, is that they have big Moats that protect their profits, low debt, a lot of Owner Earnings and free cash flow, and they are led by great people with a Mission that matches your values.
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‘Never sell as long as the Story stays the same.’ ”
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“Reducing your basis means lowering the dollar amount of capital you have invested in the stock. This
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possible. I want a return of my capital before I worry about a return on my capital.”
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That means that, even if the stock price went nowhere, the effective rate of return doubled.
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But dividends being paid out do not automatically mean a company is doing well, and they do not automatically mean a dividend is the best use of money.”
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For investors trying to get to financial freedom, dividends are a bit of a problem.”
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I want you to understand dividends and buybacks as a way of reducing
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Buybacks avoid double taxation. Not the best reason for a company to choose buybacks, but important to keep in mind.
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Conscious Capitalism.
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know. It’s so scammy. And scummy. Check to make sure the company bought the stock.
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Read the analysis done on Seeking
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It put the news about them right into my e-mail, which was great, because I knew I would somehow miss it otherwise.
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I had also set up direct alerts from the SEC when my companies made a filing.
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but it is still really valuable to notice that Pabrai or Spier or Buffett is starting to buy or sell one of the companies on your Wishlist.”
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‘A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.’
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And that’s the key to sleeping at night—know what you own is awesome, and don’t worry too much about the price you paid.
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