1. Investing is most intelligent when it is most business like. Benjamin Graham.




Did you buy the company that has durable competitive advantage?

The companies that Warren Buffett bought have a myriad of durable competitive advantage. If you grumble that you followed Warren Buffett's investing style and yet having mediocre investing results.

One moment of self-reflecting is required.
How much do you know your company?
What is the competitive advantage of the company you bought?
Did you bought your share because some banking analyst saying they "revised" their target price?
      (And one thing to ponder is that the banking analyst profoundly like to "revise" their target price frequently without very much business sense. Well does which perfume seller will says their selling perfume smells terrible?)


DID you perform the ritual that Warren Buffett compelled amateur value investor to do?
Which is standing in front of a mirror and tell yourself (provided your mirror doesn't shows anything else which is undersirable) the reasons to buy that stock.


Charlie Munger will ask: God... Why??? Why I should buy this stock and WHY others doesn't notice it?




Each business has own myriad of indicators that can be used to assess its underlying business strength.


In my opinion, banking analyst often "very late" to detect/predict  the changing business strength of a particular company. In a simple language, they often (been thinking can the word OFTEN be obliterated) reported something that already happened in their analyst's report.


On the other hand, ability to accurately "predicting" the changing business will be a MILLION DOLLAR ability. So why should that talent sharing its precious findings in a FREE banking analyst report.


Is banking analyst report a rubbish? NO. But if you utilize as an important tool to determine your investing decision, then your method is not value type. Albeit, your investing results shouldn't be compared to Warren Buffett's.



How to assess a business's strength?
Well if somebody wants to find you to do a business (for example selling banker's analyst report), what is the questions you will ask?


Will you lost money?
What type of product you are selling
Who are the people buying your products?
How much is your profit margin (gross and net)?
How is the cost of doing the business?
How is the company's financial status?
How is the company's cash flow?
WHO IS YOUR MAJOR business partner? Are they honest?
How much is the intrinsic value of the business?


DID YOU REALLY PERFORM THE INVESTING RITUAL COMPELLED BY WARREN BUFFETT?





2. How much is the intrinsic value of the company you buying?


For a value investor, buying a company's stock is definitely became a dormant business partner.


Dormant meaning that you are being inactive, sleeping, shaking your legs while watching TV and no very limited power to influence the cooperate decision personally with assumption that your shares do not constitute more than 1% of total shares. (Please don't be angry, unless WE (ME INCLUDED) as minor shareholder work in seamless way, our influence is very limited.)


So in order to be safe, albeit not to lost money as it is the command of Oracle of Omaha, is to buy the stock when it is a bargain.


This is to attain certain magnitude of Margin Of Safety between the price you pay and the value you get.


Valuation of a company, is more of an art than science. Why? Because the myriad of factors to be assessed and the variability of each factor. Too much objectivity is needed. It is impossible to every single types of business on this Earth.


Warren Buffett and Charlie Munger are really smart. They avoided the company that they can not give valuation with plausible intrinsic value that they comfortable with. In the same time they waited the price of the company they interested to drop to their perceived REASONABLE price before they buy it.


PSYCHOLOGICAL STRENGTH OF WARREN BUFFETT AND CHARLIE MUNGER is superb. They are comfortable with stashes of cashes lying over their tables without doing anything unrational.


DID you keep cutting your selling price of a stock because you want to sell it immediately? Or did you keep increasing your bidding price because you want to possess the shares of certain company immediately?
Did you ever thought of what is the intrinsic value of your share before you selling/buying it?


Speaking of intrinsic value, Warren Buffett only value business which is very simple and easy to predict in the future. The method he uses is discount cash flow method (DCF). It is not a best valuation method (as what we know, valuation is an art not science), therefore Warren Buffett opt to be roughly right than precisely wrong.


Warren Buffett uses a conservative discount factor (should be much more than that banking analysts using; presumably more than 12%) and lower projected growth rate together with owner earning rather than EBITA or else fancy flower name.


Please read BOOKSSS related to Warren Buffett and discounted cash flow.
This is a million skill that you should earn yourself.


Did you value of company conservatively? Do you have margin of safety???




3. Psychological strength


This can also be translated into: did you fall into human psychological misjudgements?


Time for me to eat the reunion dinner...


Happy CNY everyone!


LASTLY, I urge all of us to help others that need our help. Do donate those who need our help (2.6 billion ringgit is not a donation).





INVESTMENT IS MOST INTELLIGENT WHEN IT IS MOST BUSINESS LIKE-- Benjamin Graham


Contemplator
7/2/2016

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