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Kindle Notes & Highlights
“Every human problem is an investment opportunity if you can anticipate the solution,”
What investors should do is focus on the business, not on market prices.
“Bear market smoke gets in one’s eyes,” he said, and it blinds us to buying opportunities if we are too intent on market timing.
Phelps advises looking for new methods, new materials and new products—things that improve life, that solve problems and allow us to do things better, faster and cheaper.
“One of the basic rules of investing is never, if you can help it, take an investment action for a noninvestment reason,”
Don’t sell just because the price moved up or down, or because you need to realize a capital gain to offset a loss. You should sell rarely, and only when it is clear you made an error. One can argue every sale is a confession of error, and the shorter the time you’ve held the stock, the greater the error in buying it—according to Phelps.
The biggest hurdle to making 100 times your money in a stock—or even just tripling it—may be the ability to stomach the ups and downs and hold on.
I call these two factors—growth in earnings and a higher multiple on those earnings—the “twin engines” of 100-baggers. We will come to this point again.
To make money in stocks you must have “the vision to see them, the courage to buy them and the patience to hold them.” According to Phelps, “patience is the rarest of the three.”
For all the detailed financial analysis in this case study, the essence of the deal is right here in this table. You see a rapid increase in sales, rising profits and a rising ROE. (We’ll get to ROE in chapter 6.) If there is a detectable formula for 100-baggerdom, this is it.
If people weren’t so often wrong, we wouldn’t be so rich. —Charlie Munger
can’t be involved in 50 or 75 things. That’s a Noah’s Ark way of investing—you end up with a zoo that way. I like to put meaningful amounts of money in a few things. —Warren Buffett
truly great business must have an enduring “moat” that protects excellent returns on invested capital. —Warren Buffett
Warren Buffett that “when management with the reputation for brilliance meets a company with a reputation for bad economics, it’s the reputation of the company that remains intact.”
“Usually the market pays what you might call an entertainment tax, a premium, for stocks with an exciting story. So boring stocks sell at a discount. Buy enough of them and you can cover your losses in high tech.”
John Maynard Keynes: “The difficulty lies not in the new ideas but in escaping from the old ones.”
The first category includes stocks that were grossly overpriced to begin with.
The second type of stock unlikely to recover is one that suffers a “permanent impairment.”
The third and final category includes stocks “subject to massive dilution during the meltdown where old common stockholders were unable to protect themselves from the dilution.”
“A falling stock market seems to clarify and stimulate thought. When it is rising, nobody cares to know why or how, but when it falls everyone is very eager to know all about it.” —Albert Jay Nock, Informed Common Sense: The Journals of Albert Jay Nock
1. careful selection of a few investments (or a few types of investment) based on their cheapness in relation to their probable actual and potential intrinsic value over a period of years ahead and in relation to alternative investments; 2. a steadfast holding of these investments in fairly large units through thick and thin, perhaps for several years, until either they have fulfilled their promise or it has become evident that their purchase was a mistake; and 3. a balanced investment position, that is, a portfolio exposed to a variety of risks in spite of individual holdings being large, and
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