's of Sound Investing

By: Theodor Tonca

Essentials of The Investing Alphabet

- How To Think About Market Prices - How To Value A Business

void Big Mistakes

You only need to do a very few things right to get decent returns on your money over the long-term, as long as large one time losses are avoided.

alance Sheets Are Important

This is where the analysis of every business's intrinsic value begins.

ash Is King
In multiple respects, in our own investing as well as in terms of the companies we invest in.

on't Make Forecasts

Don't let what is important and unknowable get in the way of what is important and knowable.

arnings
Build a portfolio of businesses whose earnings appreciate over the long-term.

ocus
On your best ideas and current investment holdings.

reat Businesses

Buy great businesses at reasonable prices, rather than reasonable businesses at great prices.

old

As in, buy & hold.

"Our favorite holding period is forever." - Warren Buffett

nvesting Is Most Intelligent When It Is Most Businesslike

Treat your investments for what they really are, minority stakes in operating businesses rather than tickers on a screen or "stocks".

ustified Price

When purchasing a portion of a business always ask yourself what the "justified price" for that entire business would be.
In other words, how much would a knowledgeable, rational and informed businessman pay for that entire business.

now what you know & know what you don't

Even more important than knowing what falls within your circle of competence is knowing and recognizing what falls outside of it.

ong Term Investing

"An investment operation is one which upon thorough analysis, promises safety of principal and an adequate return." Benjamin Graham

inimize Costs

Because one's real return on investment is what goes into your pocket (after management fees, brokerage costs, taxes & inflation.)

et Income, not EBIT or EBITDA

Know the true profitability of the businesses you own, rather than superficial quantitative formulas.

off Balance Sheet Items

Familiarize yourself with the world of special purpose entities, vehicles, collateralized debt obligations & credit default swaps.

/E Ratios

The starting point of all investment research, because we don't want to talk even preliminary about investing before knowing the price.

uality over Quantity

The quality of the businesses you own is far more important than the quantity you own.

eturn on Equity

Good businesses will consistently earn higher returns on their invested capital than average or mediocre businesses.

ale

Just like you would buy more appliances, clothing and food if these items were to go on sale; you should buy more of good businesses when they are offered at bargain prices too!

angible Book Value

Calculated as: Total Tangible Assets Outstanding = Tangible Book Value

Total Shares

Typically the second point in one's research, as we want to know what a company is valuing its assets at and compare that figure to our own estimation of their intrinsic value.

ndervalued

If its cheap, unnoticed, un-loved, neglected and boring; i want to know about it, and you should too!

all St.

Wall Street is highly dependent upon activity and commissions for its profits, therefore it is inherently anemic to investor's interests.

Rate of Return

Determine the rate of return you require on your investments to make the inherent risk to your principal worthwhile.

ield

As in other areas of life, when investing appearances can be deceiving.

A low yield does not necessarily mean a safer investment and a higher one does not connote more risk.

ero

If your purchase has a higher likelihood of going to zero than experiencing any gains, not only are you not investing but such a purchase does not even qualify as an intelligent speculation.

Now that you understand the ABC's of sound investing you can be an intelligent investor too!