A Philosophy on Investing

I look for good companies with attractive stock prices.

Some may call it growth at a reasonable price. I don't like to think of it this way. First, because it is jingoistic and fails to take account of the nuances in my approach. And second, because a good company may not necessarily have great growth prospects per se, but still have a very attractive stock price (from a long term equity ownership perspective). The beauty of a good company is that it has products, a market footprint and market opportunity that is sufficiently attractive (could be large market, could be niche positioning, could be something else) and competent enough management to continue to steer the firm along a productive path.

Now there are two other associated perspectives that are worth bearing in mind. The first is that I don't want to invest in a good company with an unattractive stock price. This would be the case where the market has bid up the price of the stock (ie. it trades at a substantial premium to a reasonable estimate of its long term intrinsic value) to the point where there is little margin for safety. The second perspective is that I am leary of investing in lousy companies with what appear to be highly attractive stock prices, ie. value traps.

There are two other areas where you can make a lot of money. The first is in buying cyclical stocks at the bottom of the cycle. The second is in identifying what were previously lousy companies that are turning into good companies and have a highly discounted stock price. Those are attractive investment opportunities also. If you fish in either of those areas, then you need a framework to understand and analyze the dynamics of both of those situations.

Major unwritten rules underlying investing are patience, structure, discipline and courage.