Warren Buffett’s has built a multi-billion dollar fortune by following a simple investment mantra. He only buys good companies at attractive prices. This approach seems simple at first, but defining what constitutes a good company isn’t easy. Luckily, the Oracle of Omaha has spoken about this subject at length in the past. In 1991, he explained that one of the simplest tests one could use to a establish the strength of a business, was to ask “how long does the…
Every investor is aware of the industry’s greats, names such as Warren Buffett, Ray Dalio, Seth Klarman, and Carl Icahn. Most may even be aware of other highly successful fund managers such as Chase Coleman, Glenn Greenberg, and Lee Ainslie. But there are a whole range of overlooked fund managers out there who’ve been able to achieve similar if not better returns than their billionaire peers. One of these fund managers is Norbert Lou. If you’ve not heard of Lou…
Michael Mauboussin is widely thought of as one of Wall Street’s top analysts. He specialises in fundamental investing and the methods investors can use to improve and streamline their processes such as decision making, valuation and portfolio positioning. In 2016, after 30 years on Wall Street, Mauboussin published a document outlining the 10 most prominent traits he had observed all successful fundamental investors as having. The full document can be reviewed at this link, and below I’ve compiled the summary of…
Diversification is one of the essential principles of portfolio construction. Unfortunately, it also seems to be one of the most misunderstood. Diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk. Investors can never be 100% sure that a particular asset will generate a positive return. (We can’t, for example, positively identify 100% of frauds). But we can use diversification to reduce the impact a negative outcome will have…
Every investor will have a tale of an investment that went wrong. If they don’t, they’re either lying or have not been in the game long enough. It would be great if we lived in a world where every investment decision turned out to be a profitable one. But that is just not the case. There will be bad deals. Companies fail for a multitude of reasons, and investors can’t screen for all of them. Even if we could, there’s…
In a previous article, I took a look at the strategy Warren Buffett has said he used to value stocks. In the article, which you can find here, I highlighted some of Buffett’s previous comments on valuation and calculating a company’s cash flow figures, which can offer a roadmap to calculate intrinsic value. “If you can tell me what all of the cash in and cash out of a business will be between now and judgment day, I can tell…
Some investors wrongly believe that being a dividend orientated investor means there’s reduced potential for capital growth. But that is not the case. According to a study published by the Brandes Institute between June 1981 and 2015, high dividend-paying stocks delivered higher total returns than lower dividend-paying stocks partly due to the dividend return, and partly due to price growth. The study looked at the five-year annualised rolling average returns of the largest 50% of stocks by market capitalisation during the period….
Cash is dull. Having money sitting in your account doing nothing can be boring to watch, especially when compared to equities. In the current interest rate environment, cash returns are also lacking. But boring can be useful. Cash might not provide investors with high returns, but it does offer optionality, and you can’t put a price on that. The benefits of cash in a portfolio The coronavirus pandemic of 2020 has been one of the best case studies of why…
Some investors have made life-changing amounts of money in the stock market. Unfortunately, these investors are in the minority. Research shows that the vast majority of individual investors barely break-even in the long-term, after including the impact of inflation on returns. Similar research has also shined some light on why this is the case. As it turns out, investors struggle not because they don’t pick the right stocks, but because they don’t wait long enough. To put it another way,…
Here’s an excerpt from an article I recently stumbled across written by Peter Lynch in 1993. In it, he talks about the importance of doing your own research and not relying on the opinions of others to make your investment decisions. I’ve edited the text below for clarity and conciseness: “The fact that the professionals now dominate the markets, which so often leads people to conclude that the amateur has no chance, has actually improved the amateur’s chance…What holds them…