77. Everyone makes mistakes, including the best management. Management who fail to mention or apologize for their own mistake could indicate ego problems.
78. Google Trends could help measure the public perception (I call that “Hippiness”) of a specific range of product. Great growth story could be discovered here before the wall street analyst find them.
79. In the process of researching a company, it is also important to check out every single competitors it has. Sometimes you might find better opportunities in the same industry.
80. For small investors, “cigar butt” type of value investing has even more problems – You have no control over the management on how to realize the existing intrinsic value. Rate of return decreases over time as you wait for the market or the management to realize the intrinsic value of the share you bought. That “free last-puff cigar butt” is on someone else’s hand, and you have to sit there and wait for it. Meanwhile, you may be missing out some of the better stuff around the corner.
81. Do not place bets just because they have good management. “When a manager with a great reputation meets a company with a bad reputation, it is the company whose reputation stays intact.” – Buffett
82. Ask yourself – can you afford to lose all the money you are going to invest overnight? If your answer is no, you better keep that money in a savings account.
83. Write down a list of events that would trigger an immediate “sell” in your portfolio when those events occur.
84. I have my own set of “KPIs” to measure the performance of certain management in different businesses. They are rated on their integrity, intelligence and effort. Promise/delivery ratio, Quarterly to Quarterly financial forecast accuracy, communication skills, compensation/annual profit growth ratio, shareholder friendliness are some of the examples.
85. Be very careful when there is a “disruptive innovation” that changes everything in an industry. It doesn’t apply to the technology industry only. HMV, Blockbuster, Barnes and Noble are solid example of what technological change could do to traditional retail businesses.
86. I look at my list of “to buy list” every day and I keep a minimal rate of return requirement in mind. I wait for the price to drop below a point that would secure me a reasonable rate of return before I consider putting my money in.
87. Honestly evaluate how much time you could put into investment research and analysis. Time constrain the amount of stocks you could carefully go through, and it could hurt your rate of return. Years ago I read from a hedge fund manager that if you can’t do this full time with at least $1 MM invested capital, it’s better to just buy an index fund and spend the time to develop your career instead. I agree to a certain point, but I also enjoy the learning process. I believe the experience, knowledge and fun I gained over time is the intrinsic return besides money. These returns actually compound overtime, along with my money.
88. Contrary to Buffett, I do read analysis pieces from different Wall Street analysts. I isolate their opinions and look for facts they are presenting, and then filter out the facts that doesn’t matter in the long run. Given that they are hired to cover a certain industry and stocks full time, chances are that they have probably spent more time on digging information about the stock than I do. If you think you know better, (either you spent full time researching the company or you have been following the company for years) their reports tend to repeat what each other say and they could be a waste of time.
89. A good real estate agent could walk into a house and know roughly how much it would be sold for. They never needed a calculator with them. That’s because they have seen countless similar houses transactions and understand how each attribute affect the valuation of a house. As a business investor, it would be beneficial to have gone through a lot of business to develop that “sixth sense” over time.
90. Read widely to look for growth stories: Do you know how much people love their Chipotle and the secret chipotle sauce? Have you read that lululemon fan blog? Do you know about OPI nail polish? How about that funny looking Croc Rx shoes that is all over hospitals?
91. Look for successful domestic business that has a plan for overseas expansion – Another growth potential.
92. Cost control should not be done during the bad times only – Management should be looking for ways to cut cost every day, and mention how they are doing it in every annual report.
93. Shareholder meetings rarely give me any additional insight into a business, but if it’s happening near where you live, attend for the opportunity to ask questions on your mind. Bonus if they serve good snacks/drinks or give out samples of their products.
94. I don’t try to predict what the world’s economy will be like in the next quarter or so. A lot of times, economy is affected by the decision made by a small group of people, and predicting their decisions is almost like predicting when a cat will lick its tail again.
95. Look outside the buy and hold strategy. If you have the extra time, engaging in arbitrage or special situation deals could churn out just as much cash as what a business could.
96. Use technology to help you filter through different news and data. In the Old School Value Best Investment Sites Magazine, it includes several useful content organization sites that helps you to efficiently consume contents.
97. You could make a bad decision and get a great outcome (like a lottery ticket), and you could also get a bad outcome with an intelligent decision.
98. Short term price volatility measures the psychological fluctuations (in another word, craziness) of the market, not risk as we define it.
99. Never recommend or even talk about specific stocks to your relative or friends, for their own good. Besides the possibility of getting all the blame for a bad idea, people might just take your good idea and execute in a bad way. Try to share the philosophy instead.
100. At the end of the day, it’s all business. If there is a short term trade that could guarantee a 1% return on my investment in 5 mins, with no to minimal downside risk that I could fully understand, I will certainly participate. Do not let certain framework hold you back from different opportunities to make money. In 1997, Buffett tried to corner the silver community market by buying up 130 million ounce of silver. It was a one-time trade, a short term opportunity, on a commodity of which its real value is based on the supply and demand of the market. It’s hard to fit this into the value investing model for typical businesses, but it made Berkshire handsome returns.
A New Series is ComingThat ends this series on 100 things learned from investing. Looking back, Daniel and I have certainly made a lot of mistakes and learned many lessons but all of which are helping us grow as better investors. I hope you have found these lessons valuable and worth considering.
But stay tuned – a new series is coming up!
Read the rest of this series:
- 100 Things I Learned from Investing (1-25)
- 100 Things I Learned from Investing (26-50)
- 100 Things I Learned from Investing (51-75)