The Warrent Buffet Way - Part I

Here’s what I’ve got from reading “The Warrent Buffet Way” written by Robert G. Hagstrom:

* Took the ideas and integrate into your own approach in investing. Only from your own ideas you can create wealth. Be your own self.

* When the price of a company stocks are sold below their intrinsic value; act firm and decisive.

* Preferences in buying stocks:

1. Buy certainty in a discount price. Certainty in here means: possibility to predict and forecast the next economy condition of a company.
2. You’re in your competency circle: a cumulative of your experience.
3. If there’s no opportunity at all then wide your competence circle by learn diligently of a new business models.

* Knowledge from Benjamin Graham:

• Security Analysis: a portfolio that well selected and good diversification based on decent price could be a good investment.
• Investment is defined as an action with a comprehensive analysis, guarantee the initial investment and satisfying return. The action beyond the definition is classified as speculation.
• Comprehensive analysis: Torough studies based on available facts and try to deduct the result realistically and logically accepted.
• What must be known by the true investor:  i) Security of the initial investment on a specific parameter. ii) Satisfying return.
• Security is not everything. Investor must seek something that could be considered secure from loss possibility under reasonable circumstance.
• A good investment concept: margin of safety:
• In stocks: if the spread between price and the intrinsic value is wide enough.
• In bonds: if you bought it undervalued. When the company’s operational history in the last 5 years shows a good ability to create annual profit 5 times greater than its fixed cost.
• Consideration factor in determining company’s value: profit’s strength in the future. Investor also should determine a right intrinsic value. Investor then must accept an estimated range of value.
• Rules in investing: don’t loss. The approach: i) Buy a company which price is 2/3 of its net asset. ii) Focus on a low P/E ratio stocks.
• A value of a random investment is the present value of discounted future cash flow.

 “Basic idea of investment: perceive the stock as a business, use the market fluctuation to gain profit, and seek the margin of safety.”

- Continued to part II