A Few Lessons for Investors and Managers by Peter Bevelin

Post courtesy: https://blas.com/lessons-for-investors/

Summary

Bevelin compiles Buffett’s investor letters as well as other good sources of value investing into a quick and easy-to-read investing manual

Key Takeaways

  1. What investing in financial assets is all about – laying out cash today in order to get more cash back in the future

  2. Valuation – follow the cash as it’s the only thing you can spend; rough approximations are enough

  3. The value of a business – beware optimistic predictions, accounting jargon

  4. Return on Tangible Invested Capital reflects the cash flow generating characteristics of the business – should be able to generate substantially more than $1 for every $1 invested

  5. Business characteristics

    1. The great – high returns, a sustainable moat and obstacles that make it tough for new companies to enter

    2. The good – earn good returns on tangible invested capital

    3. The gruesome – require a lot of capital at a low return business; I have to be smart every day businesses; fast changing industries;

  6. Past results as a guide – sometimes useful and sometimes dangerous

  7. The importance of trustworthy and talented management – integrity, talent and passion

  8. The importance of clear yardsticks to judge management performance

  9. Corporate governance – board’s most important job is to pick the right person to run the business and evaluate their performance

  10. Owners and management – just follow the golden rule; decentralization and trust and loyalty all pay off in multiples

  11. Management compensation – you get what you reward for. Incentives are a superpower

  12. M&A – dumb acquisitions cost owners far more than most other things

  13. A few management issues –  be honest and trustworthy and select people you can trust; look for companies with low HQ costs; clear communication

  14. How to reduce risk – prevention is much better than cure – keep it simple; know when you have an edge and buy with a margin of safety (fewer but larger bets); be conservative with debt; distrust biased advice; avoid mindless imitation and don’t be caught up in the latest fads and fashions; pay no attention to forecasting; have the right mental attitude towards market fluctuations

  15. Sometimes mistakes are made – do postmortems on dumb decisions; learn from others mistakes; see the world as it truly is.