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3 points in stock investing.

Tuesday, October 15, 2013

I like to keep my life simple. I try to avoid complications. 

Life, unfortunately, is rarely as simple as we would like it to be, isn't it?

I am sure we want to keep stock investing simple as well but can it be simple?

1.  Focus on values and not prices.
"Price is what you pay. Value is what you get."

2.  Focus on competitive advantage (economic moats).
“In business, I look for economic castles protected by unbreachable moats."

3.  Focus on having a margin of safety.
"The dumbest reason in the world to buy a stock is because it is going up."

All quotations are, of course, Warren Buffett's.

Distilled to just 3 points, stock investing can be simple. Simple but it definitely requires work.

It can be simple but it is not easy.

Some related posts:
1. 5 rules for successful stock investing.
2. When to BUY, HOLD or SELL?
3. Tea with Solace: Getting ready for investment.
4. Interview with Matthew Seah: Value Investing.
5. Why is Warren Buffett the greatest money maker?


Solace said...

Hi AK,

There are people who are impatient and they want to know what is the "essence" of investing.

I think you have successfully listed out the "Essence", but in order to master the 3 points, it takes lots of time and effort...

Hopefully, potential investors will not rush in when they are not ready. Being Patient is defintinely a huge virtue in investing.

Anonymous said...

Hi AK,

U need a lot or work to know point 1 and 2.. Then a lot of patience for 3.

AK71 said...

Hi Solace,

I am not a genius and I have had a very difficult time learning through trial and error.

There are good books out there but it is hard to find a good mentor. Until now, I don't have one.

Unless we are intellectually challenged, we can tell good advice when we see one. The difficult part is in internalising it.

AK71 said...

Hi Mike,

Indeed, it is like fishing.

Wait for a price that will give us an acceptable margin of safety. :)

Gary said...

Hi AK, want to be my mentor??? =D. I draw some similarities between value investing and doing safety risk assessment. Safety risk assessment may seem simple at its surface but it's really damn complicated and complex. Thus, e risk assessment is like an art; one has to do lots of homework (related to point #1), one has to really find things which are real potential hazard (akin to point #2), and lastly safety risk assessment needs to be communicated to stakeholders to seek their buy-in (need lots of patience!!!)

AK71 said...

Hi Gary,

Wow! I am not sure I fully understand the example you have offered. I think my old brain isn't quite up to scratch. -.-"

As for being a mentor, I am definitely not qualified. :)

SGYI said...

Hi AK,

Good 3 points in investing. It looks simple with just 3 points but we know it's not easy. Took me quite a while in my journey and after setbacks to finally realise what i should focus on in investing. Including losing money :(

AK71 said...

Hi SG Young Investment,

Well, I am constantly trying to do more with less. The same goes for blogging.

Where possible, I try to maximise the positive impact on readers while economising the writing. :)

Cory said...

I like to print your 3 points and paste on my cube. Simple to follow. Lol

AK71 said...

Hi Cory,

I am glad you like the blog post. :)

What is a "cube"?

Gary said...

Transformer -> The Cube which can transform that contains the matrix of leadership!!!! =)

AK71 said...

Hi Gary,

Ooooh! I remember that one in Transformers. Cory is in possession of one? Wah! O_o

Cory said...

Yah transform through a salaried worker working in a small cubicle (cube...)

AK71 said...

Hi Cory,

LOL! So des ne! I am in a cube too. -.-"

The Sun said...

Hi Ak,

Here is another famous quote from Buffett himself worth highlighting and it relates to making money:

Focus on Making Money:
Rule no 1: Never lose money. Rule no 2: Never forget rule no.1.

The Sun

AK71 said...

Hi Sun,

Rule No. 3 (often missed out):

Do not get into debt. :)

Anonymous said...

"Someone is sitting in the shade today because someone planted a tree a long time ago."

Patience is like planting a tree.

AK71 said...

"You need a different checklist and different mental models for different companies. I can never make it easy by saying. ‘Here are three things’. You have to derive it yourself to ingrain it in your head for the rest of your life." Charlie Munger

AK71 said...

I have been reading and have some questions. How do u know when to enter the market? What are the key indicators you use? PE? Dividend yield?
For e.g. does it mean when it goes below 0.68 for e.g. you buy 10 lots, if drop down to 0.65 you invest another 10 lots?
Perhaps you can point me to your most relevant blog? Coz you have too many blogs!!!

You might want to read all the blogs in the right side bar under "Food for thought" which also has some recommended books. I cannot explain in just one blog. You need a textbook (or a few) to do it. 😉

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