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Foundational Principles of Successful Investing
Sep 13, 2024
Investing Principles and Framework
Early Investment Experience
Began investing at age 11, buying first stock.
Experimented with stock timing and charting.
Fun experience but initially profitless.
Read extensively on investing but lacked a framework.
Introduction to The Intelligent Investor
Read Ben Graham's
The Intelligent Investor
in 1949.
Book provided a foundational philosophy for investing.
Emphasized that a stock is part of a business.
Key Concepts from The Intelligent Investor
Stock as Part of a Business
Value a business by considering its economic characteristics.
Evaluate competitors and management.
Focus on the intrinsic value rather than stock symbols.
Mr. Market Analogy
The stock market is likened to a partner who offers daily prices.
Mr. Market is unpredictable and irrational, offering opportunities to the investor.
Market fluctuations should be used to your advantage.
Stocks have emotional impact on investors, but stock prices shouldn't dictate investment decisions.
Margin of Safety
Always invest with a buffer for safety.
Avoid risky investments without a clear margin of safety.
Look for significant opportunities rather than frequent small ones.
Investment Philosophy
The market's role is to serve investors, not instruct them.
Business value should be the primary focus, not market trends.
Consider investments without knowing the current price to avoid bias.
Value businesses based on long-term potential and competitive advantages.
Characteristics of a Good Business
Enduring Competitive Advantage
Look for companies with a protective moat (e.g., patents, brand recognition).
Example: Coca-Cola vs. RC Cola.
Seek businesses that are run by honest and capable management.
Decision-Making and Screening
Cast out unlikely or poor potential companies early in the decision process.
Focus on high potential businesses with a sustainable advantage.
Use a filtering process to narrow down choices, akin to a chess strategy.
Long-term Investment Strategy
Focus on a few key investments rather than frequent trading.
Use a metaphorical punch card with limited investment choices to enforce deliberate decision-making.
Aim to find impactful investments that can significantly influence portfolio performance.
Conclusion
Investing requires understanding and selecting businesses based on intrinsic value and competitive advantages.
Following a disciplined framework leads to successful long-term investments.
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