Tuesday, March 31, 2009

My Investment Philosophy?

Maybe I am wrong but for the qualitative measures like management ...and the business model.
I prefer to assume that a blue chip has the management quality and business model to sustain (the very reason it became a blue chip was its management ability to create a business model that is competitive in their respective sector). I do know their business model but not in the details. I believe capable management adapt to changes and business model is just an execution of the strategy of the management. Do not fall in love with management as sooner or later an idiot will run the company and you will find it out too late.

I acknowledge that I do not have the ability to understand or read management or their business model in detail. That can only be done by insiders or person working in the industry in management position. For the rest, they are reading and analysing off annual reports and PR and news and that can be a little superficial as those things are meant to be marketing tools. I don't think you can spot cans of worms reading those.

So, I am approaching it via a quantitative screening of bluechips instead of small caps (Which would required really intense scruntiny of the management and business model). Graham did mention in his works of later years that he thought an intense scrutiny of balance sheets and companies might not even be necessary for stock investment. We just need that few quantitative variables that matter. Tweedy Browne did a work on their own investment and philosophy which is nearer to Graham than Buffett.. and have proven for their own benefit that Low valuation ratio have proven to be invaluable to their selection of securities. They believe in diversification and have no more than 5% in any holdings and are investing in a whole slew of securities based on that and they didn't come out all too shabby.

But of course, the trend is my friend too. Smile Or...at least I hope he wants to be friend with me.

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