Book- Getting Started In Value Investing
Author-Charles Mizrahi
ISBN-9780470139080
Chapters: 11
Pages: 204
myRating: 5 Stars
Value investing-purchase only when you get more value for your money
Example: Buying milk regularly
#1. Price of milk you normally pays=$1.49
#2. A supermarket price=$4.99
#3. From another store if you buy in bulk=$0.79
Choose option #3, that is value investing
“All intelligent investing is value investing”
”Goal of investing”-to buy business that is selling below their underlying value
”Acquire more than you are paying for”
”A company can be a lousy investment if you pay too much for its stocks”
”Ask: Do I want to be in that business?”
”If you don’t understand the business, don’t buy it.”
”Great value investors don’t keep track of the stock price on a day to day basis”
“Never invest in any idea you can’t illustrate with a crayon” Lynch
”Find companies with consistent 5-year operating history
”Know companies to avoid”
”Know companies to focus”
“Selecting a good investments is not the difficult part, sticking with it is challenging”
”Don’ think investments as lottery ticket”
”Invest only in your best ideas”
”Stick to quality companies and hold them for long”
”Big money is made by sitting not trading”
“When buying stocks, view your self as owner”
”Frugality is an attitude you develop, once you have it, it sticks with you in everything in life”
”Count your pennies”
”Create a culture that holds ‘saving money’ in high regard”
”A good business will usually survive a bad management”
”Go into business only with someone you would feel comfortable giving your house keys to”
”Don’t do like everyone else”
“Investing in business with an enduring competitive advantage is one of the cornerstone of a successful value investing”
“Don’t pick winners-eliminate losers”
”Don’t trade stocks using emotions, use your brain”
”When looking for investment opportunity, don’t handicap yourself by focusing on prices”
”Your goal should not be to pay the lowest prices but instead to get the best value”
”Hold stocks for 5 years”
”Don’t lose faith in value investing when your portfolio is lagging”, be patient’”
”Goal of investing-to buy great business at price that overtime will produce above average returns”
Analyzing Stocks
1. Think like a business owner
2. Stock market is there to serve you, use it.
3. Make purchase when there is gap between stock and value
Four Important Statements to Study Closely
1. Balance Sheet
2. Income statement
3. Cash Flow
4. State of change in stock holders equity
1. Balance Sheet
– shows financial position
– assets, liabilities, networth
2. Income statement
– shows financial health
– shows how much money coming in
– shows how much was paid
– shows revenue and and expenses
– Revenue-Expenses=Net Profit
3. Cash Flow
– shows where the money came from
– shows where the money was spent
4. State of change in stock holders equity
– shows the shareholders equity
Investing Tips
1. Look at the financials of the company
2. Focus on the quantity of the business
3. Limit investments to business with sustainable competitive advantage
4. Buy at Fair Price
5. Portfolio of 3 companies is plenty of diversification [don’t hold too many]
April 2000 Lessons
1. It’s not a blip
– driver of stock prices is the earning of the company
– don’t buy stock that is not making momeny
– don’t base your decision to purchase because the price is rising.
2. Mr. Market is mental [has a bipolar disorder]
– stock rise-pay more
– stock fell-unload stock for much less worth
Investor’s Failure: – they pay too much attention to what stock market is doing currently
Buffet’s Rule:
Be greedy when others are fearful.
Be fearful when others are greedy
Not following the crowd is many times the wisest to go.
Don’t follow the crowd, examine first before making a decision
Memorize this rule:
1. The stock market is there to serve you when you want it to
2. Don’t let the market influence your buy/sell decision
3. You should be a buyer when after careful evaluation you can buy something for less than its intrinsic value
4. Price is the biggest factor
Checklist: When buying a stock?
1. Figure out what the company does
2. How it makes money
3. Why you like it
Stock represents the following:
1. Plant/Factory
2. Employees
3. Product
4. Services
5. Production
6. Competition
7. Management
Buy Decision Making:
1. Don’t base on stock price performance of today, tomorrow or next week.
2. Base your buying decision on a 5-year forecast
A popular myth: ”Don’t put all your eggs in one basket”
Paradigm Shift:
” Put all your eggs in one basket and watch that basket closely”.
“ Concentrate portfolios on your best ideas and watch your ideas closely”
Andrew Carnegie’s Philosophy
Life should compromise two parts:
1. Accumulation of wealth
2. Distribution of wealth to worthy causes
Carnegie’s Dictum:
To spend the first third of one’s life getting all the education one can.
To spend the next third making all the money one can.
To spend the last third giving it all away for worthwhile causes.
Buffet’s Stock- 6 Stocks is best
Munge’s Stock-3 Stocks is best
Analysis of investment
1. Come up with the components of what makes great business
2. Study financial data
When choosing a stock:
Use 3 Inbox Method [Categorize/Study]
1. In
2. Out
3. Too hard
Are great companies great investment? Yes, stick with the champs.
Elements of a great company:
1. Innovation
2. Financial soundness
3. Use of corporate asset
4. Long term investment
5. People management
6. Quality of management
7. Social responsibility
8. Quality of product/services
Goal of every management team
1. to increase shareholder value
2. spend cash flow wisely [not waste]
“Moat-ditch dug as a fortification and usually filled with water. In business, moat is competitiveness”
4 Types of Moat [competitiveness]
1. Brand-customers are willing to pay for more for the product or service and won’t accept substitutes
2. Switching-product handcuff, customer is locked to using the product/service too much of a nightmare to switch
3. Cost-efficient and low cost
5. Protection
Lesson from Kodak
”No matter how wide a company’ moat, it has to be continually widened or strengthened”
1. Identify competitive advantage
2. Determine how enduring they are
3. Focus, Study, Keep up to date on their industries development
4. Monitor the size of moat [increasing/decreasing]
Where you invest matters:
1. Start where you stand
2. Look around you and make a note of all the things you use everyday
3. What did you like about their product
4. Why did you purchase them?
5. Would you recommend to a friend
6. Look thoroughly on stock guide
7. Choose a company with a high operating margin
Signs of a good stock
1. earning is growing
2. high return of equity
3. enduring competitive advantage
Simple Advices:
1. Think of a stock as a part of a business
a. What is the long term outlook of business.
b. How good are the people running the business.
c. Is the business attractively priced?
2. Deal with stock market fluctuation wisely. Take advantage when the market is struggling. Use it to your advantage.
3. Keep 3 Words in Mind –“margin of safety” [know this by heart]
4. Stick with quality
5. Go large cap, > than $10.0 billion
6. Have patience
7. Use common sense
