Asset Classes:

Gold: No true Price discovery/No fundamentals

Property: No true Price discovery/overcast with speculative activities/illiquid
Fixed Return Assets: Real returns(Post-Inflation) not sufficient
Equity: Builds wealth/Strong fundamentals unlike gold/some speculative activities
but backed by stock exchanges/liquidity unlike property.

Risk has been defined as the impact of short term volatility, where in fact, risk is the
permanent loss of capital.
Positive returns take care of themselves but a focus on risk management is the sign
of a professional: Seth Klarman

REIT: Why Own it: Diversification/returns/income(rent)/tax efficiency/Discipline in

REIT as for each project, they got to market. As such, management needs the
shareholder to approve each new projects by buying its shares or bonds. So there is
discipline with shareholders money.

Meaningful portfolio diversification can be achieved :

By holding large and small value stocks

along with high quality short term bonds

Investment concentric circles: Less liquid and higher risk asset classes such as
bonds, high yield, bank loans, distressed debts and real estate.
Alternative or smart beta strategies: Stocks with high dividends, low fluctuations in
prices, high profitability, low market valuation and so on
The invisible hand of Adam smith's market forces always ensure that reversion to
the mean prevails.
What's one bank trash is another bank's treasure.

A haunted house market: Where a new scary events lurks around each corner.

As investors, our investment decisions are based on pure fundamentals. Market

fearfulness is an opportunity only if we are aware of the fundamentals.

Evaluating any investment strategy:

Strategy consistency
Selection criteria
Concentration
Implementation costs

Factors before buying a commodity related business:

A long life and high quality resource base

Low cost Operations
A very strong balance sheet
Conservative and experienced management
Shares trading at a substantial discount to the estimated Net Asset value(It is
calculated on the Long -term inflation adjusted price of the commodity in
question )

During the financial crisis, it does not matter what happens in an industry, it is the
low cost provider that will come out stronger, for example Wells Fargo. I go for best
in class businesses.(Buffett)

Industry: Three tier structure:

People buy on price at the bottom

Those on Top buy for exclusivity
Those in the middle buy for value for money.

Example:

Toyota: Daihatsu: Bottom/Toyota-Middle/Lexus-Top

VW: Skoda-Bottom/VW-Middle/Audi-Top

Research and Investing: 3 Things

People: Companies controlled and managed by Quality People

Structure: Corporate structure that align minority and majority shareholder
interest
Value: Valuation trading below fair value if not outright cheap.

What's important is not so much of predicting events but having a structure that
can deal with various potential outcomes(Strong balance sheet)

G: GOOD COMPANY
R: RIGHT PRICE
I : INVESTMENT
P:PATIENCE

Sinvestors: Some investors may have a distaste for butts, booze, bets and bombs.
Prices for such stocks may be depressed in the short run, enabling sinvestors to
outperform in the long run.
As research has shown : If you seek to beat the market, you should favour whatever
is most unpopular.

Bull markets last for an average of 5 years

Secular Bull market can last even for 2 decades. It will also contain bear market
periods but will not reverse the overall trend. There is strong investor sentiment. It
drives prices higher as there are more net buyers than sellers. It is driven by large
scale national and worldwide events simultaneously for example : demographic,
population shift, political policies.
Secular bear market: Weak sentiment/causes selling pressure.

On Price to Earnings ratio :

A low P/E stock may rise very fast, just as fast as a high P/E stock. P/E doesn't
measure anything about a company. Far from it. A low P/E doesn't necessarily mean
the company is weak, just as a high P/E doesn't mean the company is strong. Good
companies often fall into the low P/E range simply because the market, for whatever
reason, doesn't expect a lot of the company. In my view, it's more often the case
that stocks are mispriced than priced correctly. And that's good news for smart
investors who study the numbers carefully.

Analogy on negative yielding bonds and notes: You have to pay to come to the
dinner and then sit there staring at an empty plate.

A business model can teach us about the importance of scale, efficiency, pricing
power, capital allocation and great management with ownership mentalities and
long term horizons.

Zero based budgeting requires managers to plan each year's budget as if no money
existed the previous year, rather than using the typical method of adjusting prior
year spending. That forced to justify the costs and benefits of each dollar used
every 12 months.
Asset allocation is not investments vs. cash but what collection of investments you
own.

Wash trade: A trader acts as both buyer and seller to create the illusions of volume.
Layering and spoofing: Off market orders designed to trick the rest of the market
into thinking there are buyers or sellers of a stock waiting in the wings in an attempt
to nudge the stock price one way or the other.

Construction company
Accounting: Revenue recognition or land bank policy
Most developers opt for percentage completion method where revenue is
recognized in proportion to the money spent on a project.

Conservative method: Contract completion under which earnings are recognized

only after an apartment is handed over to a buyer.
Banks: What you want to watch are the lenders not the borrowers
The extension of credit by instrument: Lenders figuring out new ways to give money
to borrowers by degrading their own standards to grow loan volumes.
Things to look in a microcap company:

Profitability
Sustainable Growth(Booth In Revenues And Earnings)
Compelling Valuation
High Gross Margin
Strong Balance Sheet
Attractive Share Structure
Sexy Story/Sector: No Economic Sensitivity

ROA: Two functions: Profit margin and Asset turnover

Two drivers of profitability:

Efficiency: How much revenue you can produce with your available resources
(assets)
Profitability: How much profit if you earn for each $1 of sales