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The Education of a Value Investor

The Education of a Value Investor

Date read: 2021-03-18
How strongly I recommend it: 8.12/10
(See my list of books, for more.)

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The Education of a Value Investor

Investment ordering time

“(Mohnish Pabrai) never put in an order to buy or sell a stock during the hours when the market is open.”

Gather Investment Research in the Right Order

start with the least biased and most objective sources. These are typically the company’s public filings, including the annual report, 10K, 10Q, and proxy statement. These aren’t perfect, but they are prepared with a good deal of care and attention, especially in the United States, and they are reviewed by lawyers. The company doesn’t want to get sued, so there’s an incentive to produce financial statements that investors can rely upon. ”

“The accountant’s audit letter is also key”

“But the auditor’s letter can subtly signal that the accounts are not all that they appear to be.

“Reading financial statements is more of an art than a science. Even if it’s not explicit, you sometimes sense that management is trying to provide less information than investors might find useful.”

“In the annual report, the management’s introductory letter is also important. Is it a public relations puff piece, or is there a genuine desire to communicate what’s going on?”

“The corporate filings are my meat and vegetables—less enjoyable, but usually more nutritious.”

“After working my way through the corporate filings, I typically turn to less objective corporate documents—things like earnings announcements, press releases, and transcripts of conference calls.”

“avoid reading any press coverage until after I’ve studied the corporate filings.”

Pain of loss and pleasure of gain

“investors feel the pain of loss twice as acutely as the pleasure of gain. So I need to protect my brain from the emotional storm that occurs when I see that my stocks—or the market—are down. If there’s average volatility, the market is typically up in most years over a 20-year period. But if I check it frequently, there’s a much higher probability that it will be down at that particular moment.”

Investment environment, rules and routines

construct an environment in which we can operate more rationally

"if we’re looking to make better investment decisions, it helps immeasurably to develop a series of rules and routines that we can apply consistently

What to do when a stock go down

“If a Stock Tumbles after You Buy It, Don’t Sell It for Two Years

“it forces me to be more careful before buying a stock since I know that I’ll have to live with my mistakes for at least two years. That knowledge helps me to avoid a lot of bad investments.”

“consciously assume that the price will immediately fall by 50 percent, and I ask myself if I’ll be able to live through it. I then buy only the amount that I could handle emotionally if this were to happen.”