Friday, 27 February 2015

The Copycat Investor

A common investment practice of some investors is to lend themselves to coat tailing other investors with a hope of receiving similar success and they do so not knowing why a particular investment philosophy is practiced in the first place.

While coat tailing is good to practice, I believe more can be had from the benefits of becoming a copy cat investor. This investment style is a little different from coat tailing. A coat tailing investor sits and waits for the copycat investor to go to pasture first with cash and then he follows.

On the other hand the copycat investor has a principle of practice that informs his investment approach and he isn't sitting and waiting for anyone else to lead off. The copycat investor would much rather no crowd to contend with in his investment space.

The coat tail investor searches for the executed investments opportunity and follow the copycat investor.

Who is a copycat investor though?

Warren Buffett is a copycat investor.


He copied;
  1. Ben Graham's net net approach, 
  2. Phil Fisher's scuttlebutt approach,
  3. Henry Singleton's capital allocation approach
  4. Charlie Munger's circle of competence approach
  5. Lego's approach

Mr. Buffett was not interested in coat tailing any these folks, but his preference was to take a little piece of each person's style to make himself whole. Ben Graham turned him down when he suggested Geico as a good investment. Today he owns Geico.

Phil Fisher's approach was too focused on trading the stock at a profit as oppose to owning the company for its long term earning power.

Henry Singleton called everything he touched Teledyne, but his key principle was allocating capital where he could receive the highest and best return on capital employed.

Charlie Munger's approach was simply sticking to what works well and stay within that circle of competence of what he knew.

Lastly, the Lego approach is where Berkshire Hathaway bolts on companies and tucks in other companies into its holdings and guard its competitive advantage with a wider economic moat as much as possible.

That's all for now folks.

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Saturday, 7 February 2015

A Tour of Mohnish Pabrai's Office

                                          A tour of Mohnish Pabrai's Office

There are a few steps to prequalifying an investment. Most good investors have some kind of checklist ritual that they go through before making an investment. Setting the right environment is a prerequisite and Mohnish Pabrai has a very good mental model worth cloning that by firstly moving away from Wall Street like Warren Buffett.

As I’ve always said, “copying good habits is the cheapest investment you can make”. Then the other questions an investor wants to ask are:

  1. What are the goals of the investment?
  2. What are the actions required to be taken?
  3. When do you review your investment position?
  4. Why are you still in the investment?
  5. What are the risks associated with making the investment?
  6. Why, Why and Why?

You need a checklist of items to assist you to avoid risk as also to stay focus on the most important things as you make an investment decision. I refer you to the following;

Atul Gawande wrote a book on the Checklist Manifesto

Warren Buffett’s Checklist

Charlie Munger’s Checklist

Howard Marks’ Checklist pages285-293

That’s all for now folks.

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Wednesday, 4 February 2015

The Connection Economy

It is clear to me that the new business model evolves on sharing or what is otherwise called "the connection economy". I cite this only because I am wondering: how do you get a competitive advantage in this new connection economy?

The connection economy will find share of mind, share of interest, but not share of space. The connection economy business will seek to find its fan from anywhere the internet ecosystem exists. Call the fan base a clubs, tribes or Googlites or any of the other connectors. AirBnB, Uber, Facebook and the list goes on, it is all about connecting.

What is the investment insight here? The business model must be scale-able, pollinate-able, but difficult to copy.

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Tuesday, 3 February 2015

Understanding the effects of Compounding Interest.

Only but a few persons understand the effect of compounding interest return on the invested capital quite like Mohnish Pabrai.

He best explains how he has invested Pabrai Funds capital in his book: The Dhandho Investor.

An investor can focus on one or two ideas and have your investment come through and staying in a small space watching over that investment. I'd say "you in your small corner and I in mine". Find that one thing that works for you and go do it.

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Monday, 2 February 2015

Stock Picking Winners vs Horse Picking Winners

Stock picking is not a first pass post business game like that of horse picking searching for a winner. There is no investment objective in picking a stock without considering the business behind the stock. 

Picking a winning horse to win at the Preakness is easy if you should go by the past record of that race horse, but not only is the horse's past record important, but so is the jockey's ability to bring the horse home to the winner's enclosure. 

A stock is tied to a business and the business is tied to the management like a jockey to a horse. So the management of the business is so important when picking a stock.

Light weight is a competitive advantage for a winning horse and low cost is a competitive advantage for a winning stock. 

At the racetrack it may be in your interest to watch the tote board every race, but at the stock market there is no need to watch the ticker board every day.

You will have to throw away your losing ticket at the racetrack, but at the stock market, you can hold your ticket until another day, months, years when Mr. Market feels a little enthusiastic to take you up on a higher price than you paid for that stock.  

I'd rather picking stocks over picking horses to win.

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Sunday, 1 February 2015

The Richest Man in Babylon PPP

The simple principle of wealth building is best outlined by the Richest Man Babylon.

Buy the book: The Richest Man Babylon by George Clason.

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