From Seth klarmans margin of safety

From Seth Klarman's book.

• "Being a value investor can be a lonely undertaking. A value investor may experience poor, even horrendous, performance compared with that of other investors during prolonged periods of market overvaluation. "
• "For a value investor a pitch must not only be in the strike zone, it must be in his sweet spot. Above all, investors must always avoid swinging at bad pitches"
• Remember the reason you bought the investment, and if that no longer holds true, then sell the investment.
• "The trick of successful investors is to sell when they want to, not when they have to."
• "Maintaining moderate cash balances or owning securities that periodically throw off appreciable cash is likely to reduce the number of foregone opportunities."
• a. A bottoms up approach, searching via fundamental analysis.
• NPV and IRR are great tools for summarizing data. NPV is the discounted value of all future cash flows that the business is expected to generate. Use this when earnings are predictable and a discount rate can be chosen. When interest rates are unusually low, could cause inflated share prices.
• Analyze liquidation value. Understand what would be an orderly liquidation versus fire sale liquidation. Net working capital = Current Assets – Current Liabilities. Net working capital = Net Working Capital – all long-term liabilities. Operating losses deplete working capital. Look at off balance sheet liabilities, such as under-funded pension plans.
• "working capital / sales ratio" is worthwhile. Discount rates of 12% for first 5 years followed by 15%. These higher rates indicate "uncertainty". Also see insider purchasing.
• Book value is not very useful as a valuation yardstick.
• If you see a company selling inexpensively, ask , "What is wrong with this company?" Like Charles Munger, who advises investors to "invert, always invert. Bargains should be inspected and re-inspected for possible flaws."
• He cited that institutions frowned upon arbitrage plays, and certain companies within an industry were punished without merit. Many institutions cannot hold low-priced securities, and that in itself can create opportunity. He also cites year-end tax selling, which creates opportunities for value investors.
• "Some information is always elusive," hence need to live with incomplete information. Knowing all facts does not always lead to profit. The first 80% of the research is gathered in the first 20% of the time spent finding that research."
• "High uncertainty accompanied by low prices. By the time uncertainty resolved, prices rise." Make decisions quicker, without all of the information, and take advantage of the time others are delving into the same information. The extra time can cause the late and thorough investor to lose their margin of safety.
• "Investment research reducing large piles of information to manageable ones, distilling the investment wheat from the chaff. A lot of chaff and very little wheat.
• Bankrupt Companies Look for Net Operating Losses as a potential benefit. Beauty of investing in bankrupt companies is the complexity of the analysis. This complexity leads to potential opportunity, as many investors shy away from the complex analysis. He cites the example of expensing rather than capitalizing certain expenses.
• Look at off-balance sheet arrangements. (e.g. real estate and over-funded pension plans)
• "As a rule investors should avoid the common stock of bankrupt entities at virtually any price; the risks are great and the returns are very uncertain."
• "All investors must come to terms with relentless continuity of the investment process."

Interesting, Fred Schwed seemed to be fascinated by options back in 1930 :

In defense of the Pure Gamble : Perversely enough, it is the use of options as sheer speculation that exercises a malign fascination on this writer. I do not know of anyone else who has a good word to say about this form of gamble. It would however be monstrous to leave an impressionable reader with the idea that the buying of options is a reliable way to make money. Bu the practice has such few spokesmen that I have taken it on myself to suggest that is has at least as much to recommend it as more approved speculative methods. But before buying the option, at least mull over for a little while the fact that there exists a group of gentlemen who seem to be willing to wager that this stock is not going up in the next 30 days after all.

Most of the great speculators either ended their days in penury or cam sickeningly close to it one or more times. An interesting exception was Hetty Green, but Mrs Green was both a realist and a woman, few great speculators are either.

Statisticians of a nervous, sensitive sort, after a few experiences develop a prose style which would make a German nineteenth century meta physician envious.. Quote from WSJ... If the thoughtful reader will now read that statement backwards, he will discover that its original lucidity is not impaired.
When there is a boom and everyone is scrambling to buy, take everything and sell. Invest the proceeds into conservative bonds. No doubt what you sold will go much higher, but pay no attention to this - just wait for the depression which will come sooner or later. When this depression becomes a national catastrophe, sell your bonds and buy back stock. No doubt the stocks will go lower, again pay no attention. Repeat.

Currently reading "Where are the customer's yachts?", a hilarious book by the wonderfully funny Fred Schwed Jr, a one time laid-back wall street trader who preferred to play golf instead of buzzing about keeping busy for its own sake. I don't remember when I have laughed so hard reading a book. T was quite amused to see me rolling senselessly on the floor.

Charles Munger Wonderful USC commencement speech

USC law school commencement sppech by Charles Munger

• The safest way to get what you want is to deserve what you want.
• I know looking at the people sitting behind the graduates (parents), are the people who really deserve the credit for these graduates today.
• There is no love so right as admiration based love.
• Since 5% of the big ideas in each discipline carry 95% of the freight, it wasn't difficult to pick up a lot of the big ideas in different disciplines. One has to practice the multi-disciplinary approach. I have followed it all my life and it has made my life more fun, more constructive and let me help others, and made me enormously rich. But there are dangers in it and one is that you will sit in front on an expert and you will know a lot more than him, you may cause a lot of offense, I never found a perfect way to counter that and say things without causing offense.
• I knew this young graduate of Harvard Law School and he was a brilliant lawyer, all set to conquer the world and his supervisor called him once and told him "Your duty under any circumstance is to make the client think that he is the smartest person in the room, and if you have any energy or spark left after this, then use it to make your senior partner look like the smartest guy in the room. And only after you have finished these two obligations do you want your light to shine at all." Well, that may be very good advice for rising in a large firm, but it wasn't what I did, I always followed the drift of my own nature and if other people didn't like it, well I didn't need to be adored by everybody.
• Be multi-disciplinary and really understand what you study instead of just spitting it out on the paper, if you incorporate your learning into your mental latticework of thinking then one day you will wake up and it will hit you that you are one of the most confident people in your age cohort, if you don't, then you will never feel confident.
• Many tough problems become easier if you invert. If you want to help India, turn around and ask what you can do not to help India.
• Avoid sloth and unreliability and extreme ideology because it turns your mind into cabbage. For instance preachers on TV, they have a lot of ideas on theology and a lot of their minds are made of cabbage.
• Self pity is very close to paranoia. You do not want to drift into that. Self-pity is not going to improve the situation, and when you avoid it, you'll be better off than practically everyone else.
• Get out of self-serving bias. The world does not revolve around you. A terribly inaccurate way to live. You also want to allow for self-serving bias of others.
• You really want to avoid working under someone you don't admire and don't particularly like. This takes a lot of talent and can be tricky but what I did was that I found people that I did admire and without criticizing anyone, I maneuvered myself to work under them. The outcome will be more satisfaction in life if you work under someone you admire, the alternative is not such a good idea.
• Maximize objectivity. Pay attention to dis-confirming evidence and also checklist routines. Checklist routines avoid a lot of errors.
• Also realized very early that non-legality would work very well in the parts of the world that I wanted to inhabit.
• I often tell the story of Plank and chauffeur. Chauffeur heard Planck's speech so often, one day he requested Planck to let him give the speech and he did. However, someone got up and asked some question and the chauffeur said "That is so elementary, I will let my chauffeur answer that", tossing the question back to Planck.
• In this word there are two kinds of knowledge. First there is the Planck kind of knowledge, people who've really paid their dues and have good understanding and then you have the chauffeur knowledge, who've just learned to prattle the talk and they make hell of an impression, but in the end they just have chauffeur knowledge. I think I've just described practically every politician in the United States. And your task should be to make sure that the control falls into the people with the Planck knowledge and away from the chauffeurs.
• Another thing is intense interest in a subject is indispensable if you are going to excel in a subject.I could force myself to be good in a lot of things. But I couldn't be really good in something unless I had an intense interest, so to some extent you're going to have to follow, ie. if at all possible you want to drift into something in which you have a natural interest. You will be good only if you're really interested in something.
• You also should try and maintain a lot of assiduity. Which means you have to sit on your ass and do it till you succeed. I had very good partners, partly because I deserved them, partly because I picked wisely and some luck. The only commitment we made was that when we were behind on some commitment, we pledged that we would work 14 hours a day both of us till we got the commitment honored. Needless to say, that partnership was very successful.
• Life will have horrible blows, unfair blows. Some people recover and some don't. Every mischance in life is an opportunity to behave well, to learn something, the duty here is not to indulge in self-pity. Famous epitaph : "Here lies Epictetus, a slave, maimed in body, of absolute poverty and favored by the gods."
• All my life I've gone through life anticipating trouble.
• Last thing I want to say to you as you go into the world to practice a profession that puts a lot of procedure , a lot of precautions and a lot of mumbo-jumbo into what it does, is that this is not the highest form that a civilization can reach. The highest form that civilization can reach is a seamless web of deserved trust. No precautions just wholly reliable people trusting each other to do the right thing.
• From Pilgrim's progress: My sword I leave to who can wear it.

Links on Wesco's annual meeting :
Munger Speaks on Berkshire's Success
Notes for Wesco Financial Annual Meeting

Quotes from these :

• Best way to gain wisdom was by "sitting on your (behind) and reading all day."
• It's hard to think of committees that have been successful.
• There is no substitute for a very intense interest.

Also speaks of maximization of objectivity. Had a related discussion on Friday evening with JS. Think that India's most significant hurdle may be getting over patriarchal or feudal mindset towards more objectivity.

Berkshire's 2007 annual meeting links here. From these :

• On Planned Parenthood : Buffett said he believes it is terrific. Says women have had bearing babies forced upon them for years. Men set the rules for years, and he thinks it wonderful that women can make reproductive choices. He said, "I hope you'll respect my opinion as I respect yours."
• On the Dow @13000 : Better get used to these big numbers, to get a 5% return, the Dow will have to be at a million by the end of this century.
• Warren Buffett's only tax advisor is George W. Bush. His annual tax rate last year was 20%. In comparison, he said his employees with income's of US$50k+, pay close to 37%. Forbes 400 richest Americans pay a lower tax rate than their receptionists.
• Still sticks with the 50% return claim for upto $10 million.
• "Read everything you can. By the time I was 10, I read every book in the library that had to do with investing, and many I read twice. You just have to fill up your mind with competing thoughts and then sort them out as to what makes sense over time. And once you've done that, you ought to jump in the water. The earlier you start the better in terms of reading. What I'm doing today at 76 is running things in the same thought pattern that I got from a book at 19. Read, and then on small scale do some of it yourself."
• Will 1973-74 opportunities happen again?When I closed my partnership, the prospective returns going forward I felt was the same as municipal bonds. Don't think that it is the same situation now. If I managed endowment funds, it would be 100% in stocks or long bonds or short bonds, no mix. If I have 20 years and a choice between index funds and 20 year bonds, I would rather buy stocks today.
• Silver : I bought too early, sold too early, and other than that it was a perfect trade.
• What advice do you have for people giving money 40 years from now? As long as you plan to give it back, there is nothing wrong with your time horizon. If you're compounding money at a rate greater than people generally do, you are an endowment for society. Endowments do that to get average returns. You can let someone else take care of the giving now.
• We were talking about an oil company where we read the report and couldn't find the exploration costs in the report. To the extent that it was touched on, was in a dishonest manner. It makes a difference. Annual reports tell you a lot about the honesty of the individual.
• If I were writing something now, I would say if I had to own long bonds or equities, I'd rather have equities, but I would not have high expectations, but above 4.75%

CM mentions Marcus Aurelius here, (a full transcript of the Q&A)

"What one does easily, one does well." -Andrew Carnegie

Just heard the very cool Vint Cerf speak on the future of the Internet. Am I glad to be in engineering :) Felt energized and quite excited again. Was reminded of naive excitement back in school. A cool quote by him was "Power corrupts, and powerpoint corrupts absolutely. So much effort goes into looking right, the content becomes secondary". Apparently, they have interplanetary protocols running now.

Also, ran into L in the parking lot, inspired me to think of switching jobs. I wasn't alone to think there is something wrong in current setup. He echoed a lot of concerns that have been having, received an invite to discuss further anytime.

NYSE short interest ratio is 7.4 apparently. Range is 3.5-7.5. Accordingly, the market rallies on relentlessly. Saw obscene upticks in CMG and MA. ($9 and $14+), both stocks I have owned previously and sold due to valuation considerations ;) Don't have any ideas so still 40% in cash. Iam wondering who these people are, the ones buying so much. Maybe it is smart money after all. Apparently, the last time the Dow declined in 2 of 21 trading days was in 1929.
Of course, I may be just feeling left out ;)

From James Stewart in SmartMoney :

Repeat after me : Markets do not go straight up. I've had to remind people of this in recent years with respect to real estate, oil, and now stocks. The average rally since 1979 has been 50%. But I never buy stocks when the market hits a new all-time high. I don't even like to buy on a day when the market rises. I like to buy into rampant pessimism. I've had to get a very firm grip and remind myself that there will be another correction, or at least a significant buying opportunity, as there was as recently as February. Patience is an underrated virtue in investing. Like most good things, this rally won't last forever.

Found this quote today. Written nicely hence quoted below, did always suspect puritanical strain in self, think that clear logic must be so.

"The notion that a panic should be allowed to pursue its course is perhaps of two strains. One strain takes a certain amount of pleasure, or Schadenfreude, in the trouble visited upon the market, as retribution for excesses of the past; this somewhat puritanical or fundamentalist standpoint rather welcomes hellfire as just dessert. The other sees panic as a thunderstorm, cleaning the air. It purifies the commercial and financial elements, and tends to restore vitality and health, alike conducive to regular trade, sound progress and permanent prosperity." -Charles Kindleberger

A Review of Buffet's Partnership Letters here.

From it :
There is some ambiguity in the statements he makes now and the way that he ran his business back then. He talks about how he never used margin but he actually did. Sometimes he would borrow up to 25%. He also berates fund managers for the fees they charge but his funds charged 25% of anything over 6%. He also had other fee schedules that would charge 1/3 of all profits (with no bogey). These high fees are where he made his original wealth that would allow him to be the largest shareholder of his current company and one of the wealthiest people in the world.

Something off-topic: Read this about the Gnostic Gospels yesterday :

According to the Nag Hammadi Gnostic Gospels, Jesus was just a roving, wise man who preached a life of possession-less wandering and of whole-hearted acceptance of fellow human beings. He preached that self-knowledge is the knowledge of God; the self and the divine are one and the same. The message conveyed was that to know oneself, at the deepest level, was also to know God-that is , by looking within oneself to find the sources of joy, sorrow, love and hate, one would find God.

Hmm, sounds more plausible than immaculate conception etc.. Sign me up.

Have been in India for the past three weeks. Visited the Gandhi Memorial in Pune yesterday. Was very moved by the experience. How did the country go from such selfless idealism to today's corrupt leaders and eroded values? Think India's potential as an "emerging" super-power seems overstated. Think India needs a dictator like Singapore's Lee to bring about the requsite accountability and punishment that are sadly lacking today.

The Cricket World Cup was a source of a lot of excitement upon my arrival here. Now of course, India and Pakistan are out after surprising defeats to two of the weakest teams in the draw. Ofcourse this is not so surprising if these matches are assumed to have been fixed. The Bob Woolmer murder has added another depressing and Kafkaesque angle to the whole affair. As Mark Waugh, an Australian cricketer said "The fixing problems in most of the cricketing world have been solved, except for the sub-continent. Their players still push the envelope".

May sound ironic, but have never been more in love with the country than now. Every visit reinforces my gratitude for having the luck to be born in a family and country where could be free to pursue whatever I wanted.

Portfolio doing fantastic right now. Is up 20% YTD. Too chicken to sell, since hasn't reached target price yet. Hoping for COP to 72+, APC : 45+, WFMI : 55+

From Berkshire Hathaway's 2007 annual report

Some enjoyable and thought provoking excerpts from the 2007 Berkshire annual report:

• There are many giant-company managers that I greatly admire, but I don't think I could do the management job they do. I wouldn't enjoy the duties that came with their positions, meetings, speeches, foreign travel, the charity circuit and governmental relations.
• In our early years we put most of our retained earnings and insurance float into investments in marketable securities, because of this our growth in the early years was high. (27.5%). Later years we focused more on the acquisition of operating businesses hence lower rate in later years (12.5%)
• ISCAR makes money because it enables its customers to make money. There is no better recipe for continued success.
• Paul (of TTI Technologies) rejected the idea of a "strategic" buyer, knowing that in the pursuit of "synergies", he would be apt to dismantle what he had so carefully built, a move that would uproot hundreds of his associates. He also ruled out private equity, which would very likely load the company with debt and then flip it as soon as possible.
• Jack was late. Finally arriving, he explained he had been driving around looking for a parking meter with unexpired time. That was a magic moment. I knew that Jack was my kind of manager.
• Naturally, I had no notion in 1967 that our float would be as large as it is today ($50.9+ billion) . There's much to be said for just putting one foot in front of the other every day.
• Appropriate prices do not guarantee profits, but inappropriate prices most certainly guarantee losses.
• We remain prepared to lose $6 billion in a single event, if we have been paid appropriately for assuming that risk. We
  are not willing, though, to take on even very small exposures at prices that don't reflect our evaluation of loss
  probabilities. Appropriate prices do not guarantee profits, but inappropriate prices most certainly guarantee eventual
  losses. Rates have recently fallen because a flood of capital has entered the super-cat field. We have therefore
  sharply reduced our wind exposures. Our behavior here parallels that which we employ in financial markets: Be fearful
  when others are greedy, and be greedy when others are fearful.
• Once you've flown NetJets, returning to commercial flights is like going back to holding hands.
• You will be happy to hear- and I'm even happier - that this will be my last discussion of the losses at Gen Re's
  derivative operation. When we started to wind this business down, we had 23,218 contracts outstanding, now we have
  197. A Shakespearean thought seems appropriate for the tombstone of this derivative business:
  "All's well that ends"
• As our US trade problems worsen, the probability that the dollar will weaken over time, continues to be high. I
  fervently believe in real trade - the more the better for both us and the word. We had about $1.44 trillion of this
  honest-to-god trade in 2006. But the US also had .76 trillion (6% of GDP) of pseudo-trade - imports for which we
  exchanged no goods or services. Making these purchases that weren't reciprocated by sales, the US necessarily
  transferred ownership of its assets or IOUs to the rest of the world. Like a very wealthy but self-indulgent family, we
  peeled off a bit of what we owned in order to consume more than we produced.
• The investment income account of our country - positive every year since 1915 - turned negative in 2006.
  Foreigners now earn more on their US investments than we do on our investments abroad.
• All of our direct currency profits we have realized have come from forward contracts, which are
  derivatives, and that we have entered other types of derivatives contracts too. This may seem odd, since you know of
  our expensive experience in unwinding the derivatives book at Gen Re and also have heard me talk of the systemic
  problems that could result from the enormous growth in the use of derivatives. Why, you may wonder, are we fooling around with such potentially toxic material? The answer is that derivatives, just like stocks and bonds, are sometimes
  wildly mispriced. We currently have 62 contracts outstanding. I manage them personally, and they are free of counter-party credit risk. So far, these contracts have worked out well for us, producing pre-tax profits in the hundreds
  of millions of dollars. Though we will experience losses from time-to-time, we are likely to earn - overall - significant profits from mispriced derivatives.
• Picking the right person will not be an easy task. Its not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is more to successful long-term investing than brains
  and performance that has recently been good. Over time the markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of
  successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions. Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I've seen a lot of very smart people who lacked these virtues.
• Board members must be owner-oriented, business-savvy, interested and truly independent and to faithfully represent owners.
• I have been the Typhoid Mary of compensation committees. "All other kids have one" may seem too juvenile
  for use in the boardroom, but consultants employ precisely this argument, phrased more elegantly of course.The consultant's present drill of deftly selecting "peer" companies to compare with will only perpetuate present
  excesses.
• Wall Street's Pied Piper's of Performance will have encouraged the futile hopes of the Gotrocks - above-average
  performance will be promised to them by only paying ever-higher fees.- In part the family persists in this folly because it harbors unrealistic expectations about obtainable returns.
• Let me end this section by telling you about one of the good guys of Wall Street : Walter Schloss. From 56-2002,
  Walter managed a successful investment partnership, from which he took not a dime unless his investors
  made money. Walter did not go to business school, or college. His office contained 1 file cabinet in
  1956, that number had mushroomed to 4 by 2002. He worked without a secretary, book-keeper or clerk, just with
  his son, Edwin. They used only simple statistical
  methods Walter learnt while working for Ben Graham. When asked about their record, they replied : "We try to buy stocks cheap". So much for MPT, TA and complex algorithms.
• Following a strategy that involved no real risk - defined as permanent loss of capital - Walter produced results that
  dramatically surpassed the S&P 500. Still, schools went merrily on their way presenting EMT
  as having the certainty of scripture. Walter meanwhile went on over-performing, his job made easier by the misguided
  instructions. Maybe it was a good thing for his investors that Walter did not
  go to college.
• Last year, one hapless soul asked Charlie what he should do if he didn't enjoy the book (Poor Charlie;s Almanack),
  back came a Mungerism " No problem, just give it to someone more intelligent". Other books are : "Seeking Wisdom
  : From Darwin to Munger" by Peter Bevelin and Fred Schwed's classic : "Where are the Customer's yachts?". The funniest book ever written about investing, it lightly
  delivers many truly important messages on the subject.
• Charlie and I are extraordinarily lucky. We were born in America, had terrific parents who saw that we got good
  educations; have enjoyed wonderful families and great health; and came equipped with a business gene that has
  allowed us to prosper in a manner hugely disproportionate to other people who contribute as much or more to our
  society's well-being. Moreover we have jobs we love, in which we are helped every day in countless ways by talented
  ad cheerful associates. No wonder we tap-dance to work.

Bill Miller interview excerpts

...as I'm fond of telling the analysts, if it's in the newspapers, it's in the price. So you really need to understand what isn't in the price, what isn't being discounted, what events can happen that will lead the market to think differently...

...If gasoline prices go up, you're going to drive less. So price and demand are inversely correlated: basic economics..But in financial markets, it isn't the case. Here, demand is positively correlated with price. More people buy things when they go up; if stocks start to go up, more people want them than if they're going down. The higher they go up, the greater the demand for them.... financial assets particularly - it's been very well established that demand follows price....

Entire interview here.

Planning to read Fortune’s Formula by Bill Poundstone soon.

• The task is not to see what lies dimly in the distance, but to do what lies clearly at hand - Thomas Carlyle
• Necessity never made a good bargain - Benjamin F
• Acquire worldly wisdom and do what you think is right. If that gives you temporary unpopularity with your peer group, then to hell with them - Charles M
• The ones who matter don't mind, and the ones that mind don't matter. - (unbelievably, Dr Seuss)
  
  Reading the Almanack again, as a bad day in the market. Rushing to work now to do what lies at hand, loath to leave the tulips though.

Good interview with WEB.

From James Stewart, Common Sense, some good rules to live by :

-When the market falls and stock values decline, focus on buying rather than the current value. When favorite stock falls in price, most paralyzed. Phenomenon not limited to neophytes. Ibankers seem comfortable spending billions only when high prices. e.g. M&A pick up during market peaks.
-Remember that stock represents fractional ownership in an ongoing enterprise.

Interesting Barron's section this week. Round-table II. After the scolding last week, they left us 2 copies of the paper this morning, guess am shrewish after all ;) Also signed up for brokeragelink at Fidelity. Might as well manage retirement funds as well. Have a couple of good ideas for those funds. Advising T to buy VGENX and fuggedaboutit for 1 year. Also thinking of going to Omaha this year for the annual meeting, may be fun.

Need to do some regular work today. Lagging pitifully behind on that. Atleast it provides the steady, if unspectacular steady-state and gives me something to do during the day.

Nice Quote :"The happiest conversation is one where there is no competition, no vanity, but a calm interchange of sentiments". - Samuel Johnson

"Be extremely skeptical, and stay with what you know. The great success stories in life are people who figure out what they know, stay with it, put their eggs in that basket and watch it very carefully. Don't listen to me or anybody else." - Jim Rogers


The stock market is the only place where customers will run away from a bargain. Someone once said that and it remains true. I did some buying this afternoon - nothing very big, but nevertheless, I'm putting money to work. I think that attention will blow over shortly. The market's concentration span is quite limited, so while it may be the key focus now, next week it won't be. In a few days we'll all be focused on something else.

Always Be An Early Seller
Don't worry about leaving some money on the table. As the saying goes on Wall Street - the only person who always buys at the bottom and sells at the top is a liar.

When To Sell Winners

When To Sell Winners
Professionals sell stocks only when the reasons they bought them are no longer valid. e.g a stock selected because it was undervalued is considered ripe for selling when it reaches "a reasonable valuation." Start with the stock's fundamentals, its P/E, P/S ratio, book value, and cash flow. Is it more expensive than its peers? If you're still the least bit bullish, it's probably too early to sell. The bottom line is that you have to always ask yourself why you bought a particular stock in the first place and if that reason is no longer valid, then it may be time to move on.

Another one : would you buy it again at this price? If answer is no, SELL!! and RUN!!

Some Munger pearls

Found these today.. ----- IT PAYS TO BUY QUALITY: Munger persuaded Buffett to embark on the new investment strategy with the 1972 acquisition of South San Francisco's See's Candies for $25 million -- a tiny fraction of what it's worth today. "See's candy company was the first high-quality business we ever bought," he observed. See's also demonstrated to the value of building a "seamless web of trust" between a company and its customers and suppliers, he said in making the point that doing the right thing can pay big dividends both personally and professionally. One has to have a lot of patience in waiting for the right investment opportunities to come along, and similar patience and selectivity can be useful in one's personal life as well, Munger said. "When you have doubts about a person, you can pass," he said. "There's enough nice people to interface with." Other observations Munger shared: • Strategic plans prompt people to do something when sometimes the best course of action is no action. "Strategic plans cause more dumb decisions than anything else in America." • Their mistakes tended to be "great losses of omission. "If we had invested in McDonald's in its infancy ..." he ruminated. Berkshire recently acquired a significant stake in the nation's largest restaurant chain. • Know your limits. "A money manager with an IQ of 160 and thinks it's 180 will kill you," he said. "Going with a money manager with an IQ of 130 who thinks its 125 could serve you well."