Book: 7 Secrets to Investing Like Warren Buffet
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Here's a summary and tidbits of everything I learned as I finished "7 Secrets to Investment Like Warren Buffet" audiobook.
1. The Power of Habit
- Have a checklist
- Watch your spending (live beyond your means, invest only what you are willing to lose)
2. Value Investing
- Will the company be here 10y from now?
- Can the company generate money?
- Can you understand the company?
- Are managers competent?
- Does the company have debt?
- Price to sale ratio < 3 is fantastic
3. Generating Stock Ideas
- Check your credit card and see where your money is going. This could be a good starting point to see which products or services you mostly consume.
4. Moat around the Business
- Branding
- Economy of scale
- Barrier to entry
- High switching cost
5. Understanding the Business Language
- Equity, debt growing?
- Net profit
- Key: Consistent financial record
6. Valuation of the Company
- Get the intrinsic value of the company
- The Late Graham’s Net-Net Calculation
Current Assets - Total Liability = NCAV
Take NCAV / Share Outstanding = Intrinsic Value
- Income Statement - see if the business makes/losses money (money you make - money you use = net)
- Price to book value - value company based asset
Price to book value is the same as Net Asset Value(NAV) = Equity = Networth of business. Buy below 20% below of NAV for you to have margin of safety.
NAV per share = NAV/total shares
Price to book value good to use for holdings that need equity/cash like financial companies and NOT tech companies (valued according to how it can generate profit in the future)
- PE ratio (Price to Earnings) - value company based on its earnings
Price you want to buy the company / earnings
e.g. 50000/5000 = 10
PE = 10 means it will take 10 years to break even
Each industry will have different average PE
Find a company with negative or lower PE within your circle of expertise
What is good entry PE? Buy below 30% of average PE
- Know the average PE of the company
- Take 70% of the average PE(margin of safety)
- Take current EPS (earnings per share)
- EPS x discounted PE = good entry price
- Dividend Yield.
Look for holding who gives consistent divident at least 10 years history.
7. Portfolio Management
- Diversify
- Never put more than 10% of your money in one stock
- 20% Fall -> Check the fundamental. Either buy more if fundamental is still okay OR sell and cut loss
- Do not sell purely because of price movement
- Review your port once a year
Don’t put all your eggs in one basket.
Diversifying your portfolio is a protection against ignorance.
Even the Bible which written more than 2000 years ago is telling us to diversify our investments.
"Invest in seven ventures, yes, in eight;
you do not know what disaster may come upon the land."
-- Ecclesiastes 11:2
Portfolio Management Rules
i. Start with funds allocation.
Investments, Cash allocation. Have cash ready for future investment opportunities (if stocks are overvalued, put more in cash for future market correction/buying opportunities)
ii. Never put more than 10% in every stock
iii. Strongest stocks higher weight
iv. Review your portfolio at least once a year
v. Do not sell purely base on price (should be base on performance and price)
Investment is most intelligent when it is business-like — Benjamin Graham
Fundamentals is KEY.
Mindset of Successful Investor
i. Patience. Good investing is boring.
ii. Independent thinking. Stand against the opinion of the crowd. Resist crowd psychology. Resist what is popular
iii. Focus on what you know best.
iv. Consistency. Don’t act as a speculator.
Game Plan to Multi-Million Portfolio
i. Pay yourself first. Save at least 10% of your earnings
ii. Save up for an emergency fund. Save at least 3 months of expenses for rainy days
iii. Get insurance. Holistic insurance plan - accident, critical illness, hospitalization
iv. Clear your debts. Prioritize to pay high credit card interest rates 8-16% pa
v. Invest and compound
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