Thread by @RamBhupatiraju

Re-reading this great post on @MicroCapClub by Rod Maciver. So many great lessons in here. Few of my fav points in the thread below. Part 3 is just amazing.👏

@iancassel @iddings_sean @dmuthuk @Gautam__Baid @ToddWenning @FocusedCompound @chriswmayer

microcapclub.com/2015/05/i-pass…

"In 1982, I passed on $BRK.A, which was trading at $97, because I thought it was too expensive. The price represented a 50 % P/E and P/B premium to the broad mkt. I’ll wait, I thought, until it hits $60. I’m still waiting". Today it's at $317,000.

1)Lesson 1 :About investing in high quality companies for the long term

"The role of financial markets is to take money away from mediocre and under-performing companies and put it in stable, growing, high return on capital companies."

"The approach that’s worked best is investing in high return on capital, low debt, growing companies that have the ability to reinvest earnings in the business and generate high returns on those reinvested earnings. "

2) Lesson Two : About commodities, cyclical/capital intensive and leveraged companies.

"The classic business mistake was to be fully invested at the top of the market. The objective was to be liquid at the bottom because business cycles are primarily caused by

the creation and destruction of debt. Those are functions of greed and fear, in other words of emotions."

"When oil or real estate prices increase, money flows in to take advantage of what appears to be above-average returns.

Overcapacity results, prices decline, debt can’t be serviced & gets converted into equity or otherwise written off, capacity declines and within a few yrs commodity $ begin to recover. Then the whole cycle starts over again. The swings are unpredictable in terms of duration."

"3 approaches work best over time: investing in the low cost producer with a durable cost advantage, investing in premium assets , buying debt at pennies on the $ after an industry wide collapse. These are most successful after a big mkt decline when it's most difficult to do."

"The approach that almost always results in disaster – investing in cyclical stocks based on P/E ratios. Cyclical stocks are cheapest when, industry-wide, companies are losing money or have very low earnings, and most risky when they have low P/E and high price-to-book ratios."

3) Lesson Three : Common personality characteristics of successful investors. To identify your own superior skill in investing.

"My skill evolved out of the realization that I could have avoided 90% of disasters by spending a couple of hrs with a company’s Financial statements."

Actually, Part three is too good, to take only few highlights out of it. Read the entire thing multiple times. It's so well written. My fav part 👇

END.