The best business to own is : A business that sells a product that is needed or desired, that has no close substitute and whose profits are not regulated.
The worst business to own is a commodity business where products are indistinguishable from competitors.
In order to best understand a company, you first have to understand the industry. Start by looking at 7-8 companies in an industry. You need to know what the strengths of the company are in relation to the competition and what their moat is. If you do not know how many competitors the company has, do not invest in the company. Ask management in each company which competitor they would put their net worth into.
Event Probability Outcome Expectation
A 999/1000 $1 $0.995
B 1/1000 -$10000 -$10
Total -$9.001
(Frequency of loss by itself irrelevant, consider it in connection with the magnitude of loss)
Accommodate this urge by dividing bets into Prime Bets and Action Bets. Prime bets are made when confidence to win is high (EV/FCF <=11). Action Bets are reserved for long shots that satisfy the psychological need to play.
What mind-ware would you need to activate System 2 thinking ? At a minimum you would read a company's annual report and the annual reports of competitors. If it appears the company has a strong competitive position with a favourable long-term outlook, you would run several dividend discount models with different growth rates of the company's owner earnings to get an approximate valuation.
Wealthy people focus on owning great assets.
We've made less mistakes focusing on earnings and cash flow rather than asset value.
Time is the friend of a wonderful business and the enemy of a poor one.
The worst business to own is a commodity business where products are indistinguishable from competitors.
In order to best understand a company, you first have to understand the industry. Start by looking at 7-8 companies in an industry. You need to know what the strengths of the company are in relation to the competition and what their moat is. If you do not know how many competitors the company has, do not invest in the company. Ask management in each company which competitor they would put their net worth into.
Event Probability Outcome Expectation
A 999/1000 $1 $0.995
B 1/1000 -$10000 -$10
Total -$9.001
(Frequency of loss by itself irrelevant, consider it in connection with the magnitude of loss)
Accommodate this urge by dividing bets into Prime Bets and Action Bets. Prime bets are made when confidence to win is high (EV/FCF <=11). Action Bets are reserved for long shots that satisfy the psychological need to play.
What mind-ware would you need to activate System 2 thinking ? At a minimum you would read a company's annual report and the annual reports of competitors. If it appears the company has a strong competitive position with a favourable long-term outlook, you would run several dividend discount models with different growth rates of the company's owner earnings to get an approximate valuation.
Wealthy people focus on owning great assets.
We've made less mistakes focusing on earnings and cash flow rather than asset value.
Time is the friend of a wonderful business and the enemy of a poor one.
