Terry Smith says buy quality companies (you could have bought L’Oréal in 1973 at 240X and beaten the Index).
Munger says pay fair value for wonderful businesses.
Howard Marks is quality agnostic.
So which is it? What do you do?
2/
Terry’s example: You can buy a company with 20% ROIC at 4X and sell 40 years later at 2X book value and still beat another company with 10% ROIC which you buy at 2X and sell at 4X.
He fleetingly mentions that for simplicity all earnings are retained and reinvested.
3/
I don’t know any endeavour where the difference between how easy something looks & how difficult it actually is, is as wide as in Investing (in the context of stock picking).
People across the income/wealth spectrum feel it is easy to pick stocks & multiply their savings. They fall for every racket out there - High Risk-High Return/Small Caps Outperform/Divinations by Drawing Lines/Tips from TV Experts/Option Seminars/Leverage….
1/ The key to knowing when to sell is knowing ‘why you bought it in the first place'.
— Peter Lynch
Either the story has played out or the thesis has been violated or you have found something better.
Let’s examine the case where the stock is performing first.
2/ When you sell depends on what kind of investor you are.
The traits that makes you seek high margin of safety & deep value in your buy decisions will often make you sell early. Those decisions are driven by similar mindsets.
(for the justifiably endangered retail active investor)
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1/ To have 10 stocks in your portfolio you probably have to track a 100 companies. These include competitiors of your holdings and potential inclusions.
Every company is telling a story not just about itself, but also about its peers, its customers, its vendors - the economy.
2/ Quaterly results are where you start. Maintain a sheet for each sector with important parameters (value drivers) for each stock and update it quarterly. Some website (@Tijori1)track some of this data, but maintain your own sheet. (“Quarterly Data Sheet”).