My Investing Principles:
1. Understand a company totally before buying. This means collecting every number I can find about it, reading a range of different opinions about it, and then doing the same for that company's competitors, suppliers, customers, and then continuing to do this, until I am comfortable I understand the repeatable patterns of what moves the stock, and how to value the stock.
2. Trust no one, check everything. Look for the hidden agenda in all opinions (where does their paycheck come from?). All important facts should be rechecked from multiple independent sources. The securities industry is rife with conflicts of interest.
3. Invest 100% in stocks, with a strong preference for U.S. stocks. Invest in a small collection of 4-10 stocks, one per industry. There are very few good investments; I spend most of my time finding reasons not to buy a stock; I don't believe in diversification or asset allocation.
4. Buy COMPANIES that:
A) are the best in the world at what they do. Expect to pay for quality; it's worth it.
B) have a track record of sales and earnings growth (20%/Y min.), with the expectation that they can continue to do this into the LT future, just by doing what they've proven they can do in the past. Will survive any possible industry or economic downturn. Don't buy Concepts, Stories, Also-Rans, Turn-arounds, new companies, new managements, new business plans.
C) Mostly, these companies are found dominating rapidly growing non-commodity industries, with high Barriers To Entry.
D) No big liabilities. That means: little or no debt, no important legal problems, no big unfunded pension obligations, no huge option overhang, doesn't rely on vendor financing for sales, doesn't rely on investing in Concept Startups for growth of its market.
5. Buy STOCKS that:
A) are in an industry or market downturn, so sentiment is at a nadir
B) is at the low end of its LT valuation range (P/S, P/CF, PE). Get a good price, or don't buy.
6. SELLING strategy:
A) the opposite of buying strategy (sentiment at bullish end of range, all analyst comments positive, at upper end of valuation ranges)
B) set selling parameters when buying, and stick to them.
7. If the stock is severely undervalued,
and the company is the highest quality,
and I'm certain the stock will at least double over the next 2-3 years, then consider buying out-of-the-money longest-term options. |
