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Ten Standards for Investment
Author: 阿格塔米尔
First, only buy undervalued stocks
The key to investment success is not found in cheap, high-growth or even world-class
business stock, but rather to discover and invest in stocks that are undervalued.
Simply to avoid the stock price soaring and non-competitive enterprises, investors
have been conducive to undesirable. Distorting effects of traditional thinking in
general and various non-rational prejudice are the main reason causing the stock is
undervalued. In short, if something is obvious, it is likely that other people have been
Second, dig
Edison "to +1% 99% inspiration" rule in the investment and the
creation of inventions apply. Any serious investor must be aware of a company and its
related industries in all the basic information, and only this as a starting point. Most
investors and brokers are keen to study the income statement, but I learned from
balance sheet to obtain information. Financial statements, management reports are
often more telling than that. I am engaged in investment in these years, I encountered
a successful investor is not one who likes the company, industry and country for
Third, do not believe that the wisdom of the market
This is not only because most market participants know that some things can not be
true. Market price does not accurately reflect the information is not accurate to reflect
more complete and exaggerated information. The formation of human evolution a
psychological feeling to go with the crowd is right, but it depends on you following
the Bulls and the Bears run or run along with other animals. Followed the bull and
bear run, even if you feel good more often than not wrong, if you do not make the
choice that others feel very uncomfortable, chances are you making than those who
consider themselves safe, without risk of people a better chance of success .
Fourth, the crisis into, back when hot
Here once again clear that there are between imagination and reality gap. Times of
crisis often bring the best investment opportunities. In contrast, the risk appears to be
in the best state is the greatest. Were easy to make mistakes, it is easy to understand
(but will soon forget) those hot stocks neighbors and friends always make more
money, but never had his blessing. Stock will fall in the beginning of the crisis, but it
will rebound over time around.
5, suspected to have been proven successful
Stock is overvalued and the company lost market share and profitability is a major
cause of other investors and competitors will soon see the success has been achieved.
Even if the tactics of world-class companies to rival great trouble, no matter how
good the company is immune from competition. Re-emphasize that the success has
been proven to predict success in the future the idea is wrong.
6, looking for the next generation of world-class enterprise
Choice is to develop world-class enterprise in the long run will give you the greatest
rate of return. Once fully approved, these companies are no longer cheap. The key is
not simply to find a strong business, but before other people understand what is
recognized as a world class company should be necessary. The best of the world-class
companies set standards is that they not only survive in global competition, and
prosperity. Not to participate in global competition, companies are destined to
7, insights derived from the unusual way
The most effective way to seek truth is to listen to criticism, attacks and negative
comments. In predicting a company's development prospects, I like to
collect its rivals and customers the company's management views and
opinions. Sudden widespread concern that investors often reflect the result of
excessive. Most resources are neglected or steer clear of the facts or trends before
investors have great value.
8, 9 Investigation of standard business
We can not predict the next crisis will erupt anytime, but fortunately that is easy to see
and avoid the investment mainstream. Need to do (along with a lone spirit) to the very
call to action against the investment enthusiasm of others, we are keen to sell the
stock, we are keen to give up the industrial sector or market. Trends in their own
escape from the market one way out is not to focus only on evaluation criteria (such
as price-earnings ratio or GDP). I like to use the indicators are:
● price / cash earnings
● Price / property net output
● net debt / net assets
● Cash flow
● Return on equity trend
● operating margin trend
9, record the reasons for your investment decisions
We are "winners" remember than "losers"
more clearly, it is not surprising. Over the years, I have found come back to visit in
the past made the investment report is valuable. Analysis ultimately proved correct
those causes, even more important is that the wrong reasons. People instinctively do
not make the same mistake, this psychological phenomenon called
"hindsight." But this really is the only way mistakes. Only when
investors from time to time review their mistakes, learn from our mistakes, they have
better investment opportunities in the industry to survive. Of course, if we learn from
the mistakes of others could not be better, but very few people can do, especially lone
10, looking for unusual association
Few things look like they can find unusual association is valuable, especially those in
emerging markets often overlooked link between the companies. Peruvian exports to
China as a top ten exporters of vegetables; Taiwan's most high-tech
enterprises in China and other transactions. The rise of emerging markets has also
brought new contacts in this series. Among these are increasingly important but often
neglected South-South linkages. Investors should see one of the investment
opportunities and take action.
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Listen to the value of investment
Seth Klarman
   Factions in the value of investments, in addition to Buffett and the letter to
shareholders, investors, the market's most respected and most closely
watched figure in the market point of view, Seth Klarman (塞斯卡拉曼, see text at the
end Author) an orientation out of them. As a classic textbook Margin of Safety (safety
margin) of the author, Seth is not only long-term investment performance ahead of
rivals, but always in the most crucial time, full of wisdom (wise) comments help
investors to improve investment skills (craft).
   This fine translation is divided into two parts, investment philosophy with the
article you have selected in February this year, the latest report released by Seth
Klarman, the article not only analyze the market situation at that time the biggest
challenges facing investors, but also explained why he thought the market volatility
(or uncertainty) is valuable. Actual operation of the latter part of the article for you
Excerpt Seth talks by the end of March the contents of a longer, during which he not
only details the current investment strategy and how to value investment and margin
of safety in accordance with the idea of stock picking, it is a rare presentation of its
team culture, and 20 years of investment experience.
Investment Philosophy articles
Enigmatic Mr. Market (Mr. Market)
Notation: Mr. Market value of investment from a pioneer, said Benjamin Graham.
"Common stocks have one important investment characteristic and one
important speculative
characteristic. Their investment value and average market price tend to increase
irregularly but
persistently over the decades, as their net worth builds up through the reinvestment of
undistributed earnings. However, most of the time common stocks are subject to
irrational and
excessive price fluctuations in both directions, as the consequence of the ingrained
tendency of
most people to speculate or gamble ".
   Commonly referred to as the stock has two properties, one for investment, one for
speculation. Investment value, that is, stock prices will always increase over time
rather than regular, because these companies do not reinvest profits in dividends, is
bound to increase their net worth. However, in most of the time inside, the stock price
shocks to the two directions of non rational, understanding of this point Ye Hao,
speculation or gambling is a lot of people indelible (in-depth bone marrow) in nature.
   Current market conditions, investors thought no less than the turbulent fluctuations
of the market. Investors are "long-term" in the shorter and
shorter, exaggerated point about, many investors have a daily close to the time limit
for a transaction. Can say, wait and see who in addition to the market, and the rest of
the people on into two categories: investors (long term) and traders (daily). The real
bear long-term investment often means "short" of the huge
losses. Old adage "no pain, no gain" in the stock market should
be changed to "no short-term sacrifice, no long-term gain." For
investors in terms of market panic selling in the past, to restore confidence and
stability in that their hard work brings life.
   For investors, the biggest challenge is neither a "stumble
endlessly," the stock price, nor is it a roller coaster day, the shock, but in
the macro-economic downturn, the fundamentals of the company is facing
unprecedented difficulties. We have been adhering to the over-reaction (down) =
investment opportunities in investment philosophy. In addition to fundamental
changes in stock price caused by the normal response, the excessive reaction of the
reasons might include: a growth stock performance lower than expected growth, debt
was downgraded, the company was removed from the index components, as margin
calls were forced to sell etc. (the latter part of this chapter will give a detail of actual
combat operations). Of course, undeniable that almost all species now on the market
are deeply rate down, really hard to distinguish what is a reasonable response, which
is over-reaction.
   Current macroeconomic, price, credit and equity prices there is a vicious circle
between. With the real estate market (residential and commercial) of the sharp fall in
global stock market value has shrunk sharply, both individual investors or institutional
investors have suffered huge losses. Followed, the new project was shelved, the
consumption plan was disrupted. Deterioration of the economy and rising
unemployment to decline in sales no end in sight, it is overcapacity in various
industries. Downward pressure on prices was increasing, the company's
profitability and cash flow decline. We need to face reality: consumer spending may
not be cyclical, but long-term to decline; consumer habits may be permanent;
"missing" part of the demand may never be brought back.
Dilemma for the Government, on the one hand sharp reduction in revenue, on the
other hand for the launch consumer pays the bill (coupon), that one day this vicious
circle be broken, so it is always the economy or stock prices rebound, but the reality
At the same time taught us that even then the cycle will be broken sound, whether
economic or stock prices always drop. If you do in 2008 is a value investment, then
investors will again caution against wave after wave of sell-off really surprised them
even more surprising was the company's deteriorating fundamentals,
falling stock prices have made " rationality. " Many investors
were forced out early, late settlement, the income approach rather than happy to learn
the value of investors took over.
   Buffett's famous phrase widespread - only when the tide goes out, before
we know who is swimming naked, I think the incomplete pairs. What I am not
playing word games, but when the tide goes out, almost all of the portfolio will
decline, degree. Some investors get out in time, hold out; while those who invest in
construction companies, banks, "toxic" sub-prime products,
investors may never have a chance to stand up; some investors early Sharu, some
ridicule they committed errors, but the facts will eventually prove that they are right.
So I think this saying should be changed only when the tide has flocking back, you
can figure out exactly who is swimming naked.
   Two senior investment value and Dodd Graham told us that the madness of
financial markets itself as a trading decisions to determine their only rivals, but not as
an investment to judge the trajectory to follow. Sometimes the market will give you
the hands of the premium variety, but sometimes allowed to discount. If the hopes Mr.
Market give you tips (advice), that the market is full of wisdom, you are destined to
fail. Conversely, if you find from the market opportunities, make full use of market
psychology of extreme reaction, you will be a great chance of success (especially in
the long run). If only the stock as a symbol (ticker tape), will inevitably be led astray;
and if the stock as part of the business interests of the (fractional interest), you can
ensure that no deviation from the correct track. Maintain the necessary clear
understanding of the market in turmoil is particularly important.
Concerned about the process, not results
   In the current market conditions, fund managers can only control your own
investment philosophy and investment process. Long-term investment success
depends largely on the mastery of the investment process. French bank chief strategist
James Montier, after watching the Beijing Olympic Games great feeling that
"athletes in the games before the starting gun, we need to do is to move
essentials go over in my mind, not results." Investment they not so?
   But the actual operation, undermines the investment process are too numerous, and
if a fund manager is always thinking about our customers to think of the money
he's 交易 or worry about the Touzi Zhe may be redeemed, even be
harmful to company's fate, Well, from the perspective of the investment
process has failed. If the fund manager's investment has become very
"short term", or a target of the company's value
(stock price if any) maximum, then the investment process is compromised.
Investment itself is not an easy task, successful investing is more need of honesty,
innovation, integrity.
Say a few words for the uncertainty
   Successful investment is most needed and decisive or determined. Because
long-term contrarian investment often means. When other investors hesitant, you have
to use their fear and panic, spotted a good investment targets (bargain), that can act.
Of course, success also requires flexibility and open investment ideas. Since you can
never determine the success or failure of the economy, market fluctuations, you can
never be reached on whether an investment is expected to have full grasp. If the face
of these uncertainties has always vowed, from the disaster are only one step away.
Successful investors should always take a humble and accept the fact that: even if its
hard again, it could be wrong.
   Robert Rubin has said in his book, many people are sure of all things, and he
seemed born to have any uncertainty about everything. Indeed, each perspective to
vary. Everything after deliberation, did not hesitate in front of the bull market will
always earn less; and when the bear came, never on anything,
"turning" people, is bound to lose a mess. In the investment
field, "OK" can be very flexible. If the conclusion of an
investment problems, "OK" will make investors lose the
opportunity to remedy. Investors should own the "OK" things
with other people's views on this matter to "balance",
because other investors view the event effects on stock prices tend to be more than its
true value is more important. If your check has been completely reflected in the stock
price, that is, you have no differences with other investors, then your judgments have
been worthless.
  ?"Uncertain" psychologically more difficult to bear, because
the "OK" can make us more confident, and self-confidence has
made us more determined. Uncertainty is the beginning of doubt, uncertainty can
prompt us to be more diligent in order to remove doubt as much as possible, from this
point of view, uncertainty is valuable momentum factor.
Actual combat operations articles
(Quoted and translated Seth recent speech content)
   As the first lesson is always a deep impression, the fund manager with personality
has much to intervene in the market environment, Seth looks back into the line to
catch up with the stock market in 1982, when interest rates are high, the stock market
has been depressed for 18 years (when not on Wall Street Business School graduates
preferred). Then join this year's fund managers will inevitably be
pessimistic atmosphere of the shadow of the impact of the market, they may be the
most impressive stock price can be "cheap." Market coincides
with the bull and bear market, investment fund managers on the character (pessimistic
/ optimistic) are somewhat affected. Seth consider themselves then the funds in a
small learning content than the content in business school are used.
   Value investing in today's volatile markets more efficient, it is concerned
about the return of education before people should be concerned about the risks first.
Because the risk to help investors understand how much may have to bear the losses,
the impact of people's minds is much larger than any other factor. Once
such a fear of the spread will cause investors thought would lead to "short
circuit", especially when your portfolio has fallen 40%.
   Pioneer of value investing Warren Buffett and Graham are started from small-scale
funds, according to the value of investment theory, found to be mis-pricing (mispriced)
species, and then derive profits. In fact, Graham stressed that the liquidation value of
the test method (net cash flow per share price if less than two-thirds can be bought.
Because this stock has the equivalent of less than the clearing price. You do not need
to liquidate a real home companies, but even this bankruptcy, you will not suffer
losses, they represent have become very good De investment targets) not only the
20,30 BC Shi Yong Zai Graham, Jing Li that a slump, we also found many this
   Of course we should not blindly believe the cold to the data and formulas, can by
detailed research, will find that some appear to have been very
"cheap" variety is already not cheap. For example, you see the
inventory and accounts receivable are very bad, and even environmental protection
and other companies facing litigation and compensation.
   So to sum up, we not only follow the value investing, while respected in-depth
fundamental research and detailed field research.
The three pillars of our investment ideas
   1, the risk of first concern, then is the return. Risk is not the same as BETA, BETA
values are academic issues, no sense of investment, market volatility does not mean
the other, but sometimes mean investment opportunities. We differ with Wall Street is
that, on concern the risk of value investing method takes into account the loss in
different scenarios, so get a price range, while the Wall Street investment through a
method to get a price, it is natural computation, is the return.
   2, the pursuit of absolute returns, ignore relative performance, find their own
advantage, to the greatest degree of play. Now the fund industry's
"sorrow" is too concerned about the relative performance, we
gaze at the index, looking at peers, as long as the losses than others even if successful.
On the relative performance was over-concerned about making organizations not want
too backward, do not want too "coming to the fore," to be the
best strategy was moderate. But the wealthy class of customers should be concerned
about absolute returns.
   3, we only admired from bottom to top. Because top-down too hard, anyone can
always Tazhun macroeconomic rhythm. And even if the macroeconomic projections
are accurate, and to the industry and the company is another matter. So we have been
bottom-up approach is taken, opponents in the circumstances of each variety to do the
sensitivity analysis, or "stress test."
Successful operation of the Fund for so many years of experience we have what?
   First of all, greater flexibility in product design, to join. If you can only invest in
real estate stocks, it should also be invested REIT, real estate companies and so on
convertible bonds. The more weapons the greater the chance of winning. Second, our
greatest strength lies in fund of funds into long-term (our customers only the wealthy
class and institutional clients, not funds of funds, sovereign funds, pensions, mutual
funds, etc.). This fund managers when making decisions, do not have to worry about
whether they caused the redemption, which is critical to ensure long-term investment
success factors (imagine, even if the fund manager to invest their own time limit set
for three years but within 6 months face redemption pressure, even if the fund can not
do anything no matter how good, so when the selected types of customers, to good).
The third major advantage is to maintain good relations with partners, and ensure that
we ranked first or second of their big clients, so they have large transactions such as,
first thought is that we, rather than after the dozens of customers. And that these
partners must also share our value investment philosophy, as this will ensure the
efficient transaction process, a high success rate.
On team building
   We emphasize that institutional memory (the memory of the team or agencies), key
members of the team have been working for many years, but there will be new
entrants, so we are also subtle changes in DNA, if a system of new members to
disagree, we do not will tell them that "has always been the
tradition," we would say, "This is our best way to arrive at
practice, if you have a new proposal, also welcome your 来." additional
and different opponents, We are not pre-allocated between the fund
manager's investment share of fixed but a flexible allocation approach to
achieve the best allocation of resources. Every three weeks or four weeks, everyone
will meet together, we challenged each other's point of view. Pay, in
addition to personal performance, we stress that we share weal and woe.
What we do best investment strategy can be summed up by the market mispricing
mining species.
   Caused a substantial discount any securities products are usually a number of
reasons, holders forced to sell, and few people take disk, causing a serious imbalance
of supply and demand, prices plummeted. The reason may be forced to sell the
company's credit rating was reduced because (the Fund Articles of
Association can not be investment grade below a certain level of species), probably
due to adjustment of index constituent stocks, index funds have to sell and so on. Of
course, the holder may also experience unknown to where to sell, For us, this is
"gratis" (Of course, such opportunities rarely) but it also tells us
who want to know from the hands of the ensuing cargo, if it is wise for investors than
we sell, we will think again. After all, no gratuitous hate / love. Another cause
substantial price discount may be due to the parent company divest subsidiaries,
business may need to adjust, it might be "too Zichou mother"
(subsidiary of debt? Management bad? ROE low?). In short in these events, we must
try to figure out the reason behind, which could mean the parent (free) or subsidiary
(rebirth), or even both, the opportunity to share the day's response may not
explain the problem, because we usually think of selling (especially fund investors, as
the company model changes, usually select out, which caused a scene in front of our
analysis, that is a serious imbalance of supply and demand). But with the long-term
effects of the show is often the best opportunity to value investors. For instance, we
now hold a biopharmaceutical company, the original company, since many scientific
research, so performance is not very prominent, but the company's
royalties on the drug alone can divert 30% annual return. Then the company separated,
the parent company to keep large amounts of cash accounts, responsible for new drug
development, poor performance; the subsidiary is get all royalties, subsidiary,
although a very modest pharmaceutical company, but this background, we believe that
It is little risk.
    In summary, first of all we believe that the current stock price plummeted, not
investors, after careful analysis concluded that the company fundamentals, but
because of sell-off that is too large, and then set the paucity of funds, caused a serious
imbalance of supply and demand results. Secondly, our favorite is the catalyst for a
variety of market events, which makes us the best investment opportunities. Our fund
early in 2008 the proportion was 35% in cash, not because of top-down and thorough
understanding, but according to our margin of safety does not find the investment
products, our current ratio of 20% in cash, to buy new varieties We continue to sell
because the market is still a lot of dead instruments (investment instruments have
been ineffective, or would cause us to disadvantage investment vehicle), hands to
grasp the initiative will be higher in cash. We do not share the view now is the end of
the world, we are still in very active trading. Speculators were eliminated, the next
period of time, competitors will be reduced gradually. We did not determine the
macro-economic point of view, every transaction we do sensitivity analysis, in
different economic conditions, to select those even if the serious economic recession,
but still safe investment.
Q & A
Why this recession, the performance of value stocks to growth stocks inferior?
    First of all we value stocks or growth stocks is not the same as with the academic
distinction, I do not think that is the value of the low PE stocks, the second, before
this bubble burst, many of the so-called value stocks are in accordance with the LBO
model, but now prove a model can not support the valuation. The most important
thing, after the financial sector has accounted for 40% of S & P, meaning
that the entire economy and market are largely leveraged, so that these financial
stocks (value stocks) of the adjustment had a great influence So was the concept of
net worth investors confused, the value of the investment itself is not a problem.
How to treat the relationship between risk and return?
    Prior to the investment risk is through sensitivity analysis, expected to amount or
extent of losses, such as if housing prices from 2009 to 2011 and then every year,
down 20%, if the negative growth in GDP every year, if the assumption in this
recession still get returns, then the subject of such investment is safe. Another point
we are different and academia, who think that the bigger the risk the higher the return,
and we the contrary, we believe that less risk, higher return. Such as a stock down to 6
from 17, and from 6 down to 3, then the greatest risk of decline is 3, but obviously
much bigger upside.
How to kill the error within the Fund?
   Our culture has played a significant role. If you find that has made the wrong
investment decisions, senior not yelling, because then the problem can only be
suppressed, the future will be more serious outbreak. There is a fund two years ago,
has seen goes wrong the whole company had a problem, but no such business Wenhua,
Taijiazhineng things to go home with the family this Jian Ren Jiang, Ran Hou seeing
Zhao company has gone further down the wrong track far.
How to make a sell decision?
   First, we set the share price will not exceed our estimates of the reasonable range, if
the limit has been reached in the vicinity, but after re-evaluation, maintain the original
judge, then no matter how great the increase in the future there, we will start to sell.
Twenty six years experience of most
   Different from other industries, we maximize the benefits only if the customer, we
will maximize the benefits, it must always think of customers and their interests first.
Staff Motivation, the company has more than 30 employees have the Secretary of the
stock. Speaking for myself, I think the reputation (prestige or reputation) is that each
of us based on the fundamental, industry popular that argument, called the Wall Street
Journal Home Test. Means that any one thing you do, do you think if the board the
Wall Street Journal's home page, will not shame you and your family, if so,
do not do it.
About the author: Seth. Karaman is Baupost fund president, a profound study on the
value of investment, once Graham, "Security Analysis Reading
Guide" the main author of the book. Representative there,
"margin of safety", because out of stock, sold at Ebay and
Amazon on the 2000 and 1200 U.S. dollars. Karaman investment entry is in the
common shares (Mutual Shares) the company started, but well-known growth stock
investment guru Price (Michael Price) is the boss at that time, it inherits its value
investing school of style, known as the Young Buffett.

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