| I. |
Develop a comfortable understanding of the language and concepts
of investing |
| - |
Study a basic accounting book
like The Interpretation of Financial Statements by Benjamin
Graham |
| - |
Understand how four concepts,
Compound Interest, Present/Future Value, Inflation, and the difference between
price and value affect your investing results |
| - |
Learn how cash flows through
an company |
| - |
Learn how companies manage
their inventory |
| - |
Keep a close eye on how fast
inventory and accounts receivables are growing. They should not be growing
faster than the business's overall sales growth rate |
|
|
| II. |
Purchase High-Quality Companies below Intrinsic
Value |
| - |
Look for companies selling
below intrinsic value (Use a Margin of Safety) |
| - |
Look for a trustworthy,
shareholder-oriented, high-quality management team |
| - |
Ensure the business has
sustainable competitive advantages |
| - |
Ensure management makes
rational capital allocation decisions |
|
|
| III. |
Portfolio
Concentration |
| - |
10 to 12 stocks
allows adequate diversification against company specific risk |
| - |
Over-diversified
portfolios will tend to track the performance of the overall stock
market |
| - |
Make large,
concentrated purchases when the perfect opportunity presents itself |
|
|
| IV. |
Minimize
Portfolio Turnover |
| - |
Minimizing portfolio turnover
will keep commissions and taxes paid at a minimum |
|
|
| V. |
Understand the Psychology of Investing |
| - |
Understand how market
and stock volatility will affect investment decisions |
| - |
Patience and intestinal
fortitude are requirements when investing |
| - |
Stand by your
convictions |
| - |
Understand how rules of thumb
can affect investment decisions |
| - |
Understand and
practice the concept of delayed gratification |
|
|
| VI. |
Build a Latticework of Models |
| - |
Develop a
framework of "mental models" from various disciplines to gain better
understanding of the investment process |
| - |
Be able to
combine multiple models when making investment decisions |
