1. Never follow the day to day fluctuations of the stock market.
The market only exists to make it easier to buy and sell, not to set values. Keep an eye on the market only for someone who
is willing to sell a stock at a not-to-be-missed price.
2. Don’t try and analyze or worry about the general economy.
If you can’t predict what the stock market will do from day to day, how can you reliably predict the fate of the economy?
3. Buy a business, not its stock.
Treat a stock purchase as if you were buying the entire business, using the following tennets:
Business Tennets
1. Is the business simple and understandable from your perspective as an investor?
2. Does the business have a consistent operating history?
3. Does the business have favourable long-term prospects.
Management Tennets
1. Is management rational?
2. Is management candid with its shareholders?
Financial Tennets
1. Focus on return on equity, not earnings per share.
2. Calculate "Owner Earnings".
3. Search for companies with high profit margins.
4. For every dollar of retained earnings, has the company created at least one dollar’s extra market value?
Management Tennets
1. What is the value of the business?
2. Can the business currently be purchased at a significant discount to its value?
4. Manage a portfolio of businesses.
Intelligent investing means having the priorities of a business owner (focused on long-term value) rather than a stock trader
(focused on short-term gains and losses).
