Finished reading the book in two weeks. Here are some key lessons I haved gathered from the book:
1. An amateur investor can pick tomorrow’s big winners by paying attention to new developments at the workplace, the mall, the auto showrooms, the restaurants, or anywhere a promising new enterprise makes its debut.
2. When you sell in desperation, you always sell cheap.
3. Under the current system, a stock isn’t truly attractive until a number of large institutions have recognized its suitability and an equal number of respected Wall Street analysts (the researchers who track the various industries and companies) have put it on the recommended list.
4. If a stock is down but the fundamentals are positive, it’s best to hold on and even better to buy more.)
5. The true contrarian waits for things to cool down and buys stocks that nobody cares about, and especially those that make Wall Street yawn.
6. Pick the right stocks and the market will take care of itself. That’s not to say there isn’t such a thing as an overvalued market, but there’s no point worrying about it. The way you’ll know when the market is overvalued is when you can’t find a single company that’s reasonably priced or that meets your other criteria for investment.
7. Don’t overestimate the skill and wisdom of professionals.
8. Take advantage of what you already know. Look for opportunities that haven’t yet been discovered and certified by Wall Street—companies that are “off the radar scope.”
9. Invest in companies, not in the stock market.
10. If a company must acquire something, I’d prefer it to be a related business, but acquisitions in general make me nervous. There’s a strong tendency for companies that are flush with cash and feeling powerful to overpay for acquisitions, expect too much from them, and then mismanage them. I’d rather see a vigorous buyback of shares, which is the purest synergy of all.
11. Some people automatically sell the “winners”—stocks that go up—and hold on to their “losers”—stocks that go down—which is about as sensible as pulling out the flowers and watering the weeds. Others automatically sell their losers and hold on to their winners, which doesn’t work out much better. Both strategies fail because they’re tied to the current movement of the stock price as an indicator of the company’s fundamental value.
12. None of us is immune to the panic that we feel when a normal stock drops in price, but that panic is restrained somewhat by our understanding that the normal stock cannot go lower than zero. If you’ve shorted something that’s going up, you begin to realize that there’s nothing to stop it from going to infinity, because there’s no ceiling on a stock price. Infinity is where a shorted stock always appears to be heading.
13. Asset value, by itself, has no power to produce rising stock prices. What does cause stocks to rise in value are two things that are rather closely interrelated. One is an increase in a stock’s earning power. The other, and usually the more important, is the consensus of investment opinion as to the future course of that earning power. The reason these are so closely related is the strong tendency of the financial community to conclude that because a particular company has been increasing per-share earnings at a brilliant rate year after year, this trend will continue for a long time in the future. Plus or minus the temporary influence of the business cycle, this line of reasoning is often quite correct, although occasionally it can be quite wrong.
Disclaimer: The ideas expressed in this blog should not be construed as an enticement to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.
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