Warren Buffett once said that one of the best ways not to lose money is to buy “good companies.
The company has an understandable business. Essentially, the company has a history of producing strong earnings performance. We can show a company has an “understandable business” by verifying the following:
The company has predictable and proven earnings. We define a predictable company as one with consistent revenue and earnings growth.
The company has strong “economic moat,” i.e., the company has high gross margins and thus able to grow its business with little or no debt.
The company’s shares can be bought at a reasonable price, e.g., at an attractive price-earnings to growth ratio.
To determine good companies, we can consider four fundamental factors: quality, value, growth and momentum. Warren Buffett’s strategy focus on just quality and value: companies with strong quality also tend to have strong growth.
The quality rank captures the company’s earnings predictability and profit margin growth. Companies with high quality meet Buffett’s key criteria on “proven earnings” and “strong economic moat.”
Buffett’s “good companies” not only have high quality ranks, but also have high value ranks. The QV rank, which blends the quality and value ranks, can determine how “good” a company is. The “best companies” should have high QV ranks..
“The general who wins a battle makes many calculations in his temple before the battle is fought.”
If you get a certain kind of process going in chemistry, it speeds up on its own. So you get this marvellous boost in what you’re trying to do that runs on and on. Now, the laws of physics are such that it doesn’t run on forever. But it runs on for a goodly while. So you get a huge boost. You accomplish A – and, all of a sudden, you’re getting A + B + C for awhile.
There are six phases of market mood in Cheung’s model: Normal— This is the base-building or consolidation phase where fundamentals are poor but stabilizing. Value investors are showing interest. Hypomania— Favorable news shocks hit the market, and prices break higher out of consolidation. Speculators, focused on short-term gains, begin buying. As the market continues higher, […]
Five Forces – Industry Analysis- COMPETITIVE STRATEGY Michael Porter’s five forces framework is useful for competitive analysis because industry structure plays a major role in shaping competitive strategies. It is especially useful for those businesses with the following characteristics: Defined boundaries, wherein buyers, suppliers and competitors can be identified easily. Mature and stable industry structure, where […]
Analytical edge o Investment framework; smarts/IQ; experience; technical expertise (in a sector/security/geography/etc.) Psychological edge o Willingness to bear pain and delay gratification; avoidance of (or ability to exploit) fear and greed; lack of interest in one’s popular perception; willingness and ability to go against the crowd when appropriate. Institutional edge o Properly […]