An intelligent investor( An excerpt from Poor charlies almanck)

  • Markets behave in ways, sometimes for long stretches, that aren’t linked to value. Sooner or later though, value counts.
  • Variables that affect investment results
    • Interest rates:they act inverse to financial valuations. The rate of return investors need from any kind of investment are directly tied to the risk-free rate they can earn from government securities. If the government rate rises, prices of other investments must adjust downward to a level that brings their expected rate of returns into line.
    • After-tax corporate profits:what ended up with the shareholders
  • For investors to enjoy juicy profits, some of the following must happen.
    • Interest rates must fall further: If interest rates fall 50%,the value of stocks would double. However, bond options are a better investment in that scenario.
    • Corporate profitability in relation to GDP must increase:
    • They must have invested in businesses that have durable competitive advantages.
  • The value of an asset whatever its character cannot over the long term grow faster than its earnings.
  • Future returns are always affected by current valuations.
  • The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and the durability of the advantage. The products that have wide, sustainable moats around them are the ones that deliver rewards to investors
  • Investors as a whole cannot get anything out of their businesses except what the businesses earn.
  • Transactional costs remove a lot from the profits to be shared by the shareholders.
  • On value investing: If you buy a dollar for 60 cents, it is riskier than if you buy a dollar for 40 cents, but the expectation of reward is greater when you buy at 40. The greater the potential for reward in the value portfolio, the less risk there is.
    • You need to have the knowledge to enable you make a very general estimate about the value of the underlying business.


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