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Research and Analysis


which we’ve affirmatively answered the question, “Would we want to own this company?” It’s only then that we turn to valuing each company. Brian Bares, 9.30.08

One of my clients has only one Bloomberg terminal in his office, sitting in the corner, and people get ridiculed when they use it too often. His point is that they don't need it – their business is investing and they should work out the value before seeing if there's a sufficient margin of safety to invest at the current price. If there isn't, the work hasn't been wasted because there one day might be. James Montier, 10.31.08

We’re constantly trying to triangulate and confirm what we hear or see elsewhere. If returns on invested capital tell us it’s a great business, we also want to hear from customers about why they value the company as a supplier and expect to continue to do so. If the company expects to increase market share, we want to hear directly from competitors why they don’t think that will happen. Taking short cuts in due diligence, for whatever seemingly decent reason, is just a recipe for disaster in our view. Robert Williamson, 8.31.08

In studying the common traits of those most successful at games of skill – across disciplines – researchers have found a clear tendency to focus more on process than individual outcomes. Poker legend Amarillo Slim has described it this way: “The result of one particular game doesn’t mean a damn thing, and that’s why one of my mantras has always been ‘Decisions, not results.’ Do the right thing enough times and the results will take care of themselves in the long run.” VII, 1.31.06

Pilots do the same thing thousands and thousands of times in their lives, but they still go through the physical pre-flight Winter 2008

checklist to eliminate what could be a catastrophic error if they try to circumvent it. Investors are well served by having similar types of checklists and sticking with them. James Montier, 10.31.08

The best investors often employ checklists for each idea, to ensure that no data-gathering shortcuts are made. General impressions also should not be mistaken for facts: “As the saying goes,” says Legg Mason’s Michael Mauboussin, “the plural of anecdote is not evidence.” VII, 10.31.06 ANALYTICAL RIGOR

Everyone tends to see the same things, read the same newspapers and get the same data feeds. The only way to arrive at a different answer from everybody else is to organize the data in different ways, or bring to the analytic process things that are not typically present. Bill Miller, 6.19.05

One of the best lessons I learned early on was to look at companies as companies first – to understand what they want to achieve and the likelihood they can achieve it. People too often focus on stocks first and think they can generate an edge in how they’re looking at valuation. In the end, static valuation is relatively efficient and it's what companies do that drives their futures. Oliver Kratz, 6.29.07

One of the biggest things we struggle with in training people is driving home the fact that you cannot have an opinion about an investment unless you really understand what the consensus is and are then able to articulate why the consensus is wrong. Jon Jacobson, 2.28.06

As Jeremy Siegel writes in his wellresearched The Future for Investors:

"The long-term return on a stock depends not on the actual growth of its earnings, but on the difference between its actual earnings growth and the growth that investors expected." Something to consider every time you buy a stock, especially if you’re betting on “sweeping trends.” VII, 7.29.05

We spend a lot of time trying to figure out how competitors would attack the business of the company we’re interested in. The harder that is, the more interested we are. We try to avoid markets perceived to be so attractive that capital could start pouring in at any time. Mario Cibelli, 6.30.06

I’m a big believer that a company’s success is about execution and the hundreds of little things that one company does better than another. We want to understand that for the companies we invest in: is the party line what’s actually taking place in the branches? In bad companies, there’s an enormous difference. Thomas Brown, 10.28.05

There are characteristics that have been proven over long periods to be associated with above-average rates of return: low P/Es, discounts to book value, low debt/equity ratios, stocks with recent significant price declines, companies with patterns of insider buying and – something we’re paying a lot more attention to – stocks with high dividend yields. Will Browne, 9.29.06

True sources of sustainable competitive advantage fall into four categories [according to The Little Book That Builds Wealth]: 1) Intangible assets, such as brands, patents or regulatory licenses; 2) High customer switching costs; 3) Network economics, in which the value of the product or service increases with the number of users; and 4) Cost advantages, stemming from scale, location or Value Investor Insight 16

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight

Words of Investing Wisdom  

Greatest Hits” collection of investing insight from Value Investor Insight