Category Archives: Investing Blueprint

Reflections on Hedge Fund AltaRock’s Investment Process – Part 2

Today, I continue my commentary on hedge fund AltaRock’s investment criteria as laid out in their first half 2010 letter. As I explained in yesterday’s post, I have structured my remarks using my investing blueprint as the framework.

6.  Buy the Cheapest Business Available. AltaRock looks to buy businesses that are cheap. You can infer from their letter that, in general, they are looking for businesses that will deliver more present value dollars of cash than an investment of equal value in a market index, such as the S&P 500. They know that if they do this consistently, over the long term, they create a real mathematical expectancy of beating the market. Similarly, you want to put together a portfolio of investments that ideally is both cheaper than the market and that has an intrinsic value that is growing faster than that of the market.

7.  Focus on Your Best Ideas. AltaRock has 84% of its capital in its top five holdings and 94% of its “look through” earnings. Here they follow Buffett who tracks his share of the earnings of his equity holdings. The idea here is that even though these earnings are not reported in Berkshire’s financials because of GAAP, the earnings still accrue to the economic benefit of Berkshire.

8.  Practice Patience. The letter opens by saying that AltaRock underperformed the S&P 500 in the first half of 2010. They don’t put undo emphasis on short-term results, nor should you. He goes on to say that their strategy tends to generate short periods of superior performance and underperformance. They look to outperform over the long-term.

You should adopt a similar approach. No one can produce positive or superior results every quarter unless they are fudging (Madoff). Plus it’s the long-term that matters. Focus on total returns not getting a smooth ride. Volatility is not a good proxy for risk.

9.  Avoid Stupid Mistakes. In the letter, AltaRock apologizes for holding too much cash – they averaged 30% – over the past decade, characterizing it as a mistake. I’m not so sure. They beat the market by a substantial margin with arguably less risk.

There may be times to be 100% long, but, more often than not, it is prudent to have a portion of your capital in liquid short-term assets. You never know when Mr. Market will become manically depressed; not holding cash can have a high opportunity cost. In his October 16, 2008 “Buy American” op-ed in the New York Times, Buffett wrote that he was previously 100% in U.S. government bonds prior to starting to buy equities.

AltaRock manages macro-economic risk by consciously building a portfolio that is exposed to faster growing emerging markets. They simultaneously hedge their exposure to currency and inflation risks in highly indebted developed countries.

Of note, although the letter does not mention it, is that AltaRock’s portfolio also appears well positioned for a deflationary period. The types of large caps stocks they invest in typically pay a relatively high dividend, particularly if purchased at their current depressed multiples. In addition, sales in AltaRock’s portfolio companies should hold up relatively well since they sell tend to sell necessities.

An important point regarding their discussion of cash holdings is that they have taken the time to go back and review their past performance in order to learn from it. Nobody, of course, can avoid making mistakes. Hopefully, you can learn from them by doing post mortems.

10.  Be a Learning Machine. AltaRock’s document does not directly address how they seek to continually learn. We can deduce that, like many investors, they are grappling with the lessons learned from the most recent recession and market shocks and that they are trying to position their portfolio in a way that puts them in a position to succeed if the macro environment continues to be a major headwind.

Reflections on Hedge Fund AltaRock’s Investment Process – Part 1

On August 14, 2010, I posted hedge fund AltaRock’s mid-year letter. There is so much good information in the letter, that I thought it would be profitable to go through it carefully and post my observations. The first thing that struck me was the amount of overlap between AltaRock’s process and my investment blueprint. This is not surprising since both draw heavily upon the teachings of Buffett and Graham.

I have organized my comments using the investment blueprint, which has ten steps.

1. Search Broadly and Continually for New Investment Ideas. The AltaRock letter does not specifically talk about how they go about finding new ideas, but it does clearly define what they are looking for. If you clarify exactly what you’re looking for, you’ll save yourself a lot of time by quickly eliminating anything outside of your strike zone.

Also, alla Munger, because they have already put together a portfolio of high-quality companies in which they have conviction, they can also use their existing holdings as a benchmark when evaluating prospective investments.

2.  Act Like an Owner. Following Buffett, they view themselves as partial owners of businesses, not primarily holders of stock certificates. Why does this matter? James Montier has stated that having a long-term horizon is the most important advantage you can have over short-term speculators. In order to profit from this advantage you need to sit on your holdings for long periods of time. You won’t do this if you don’t understand the business (see point 3); you need to have the same mind-set you would have if you were buying a farm, office building, or small manufacturing plant in your home town.

AltaRock goes so far as viewing their holdings as a conglomerate, The AltaRock Conglomerate, for which they track key economic performance data. This is a good idea if it helps drive home that when you own a stock you own a piece of a real business and that your long-term fortunes, or lack thereof, will be primarily dependent on the long-term performance of the businesses you own.

3.  Only Buy Things You Understand. Massey writes that, “Successful investing involves getting to know the true nature of a business and becoming so comfortable with its characteristics and valuation that you would happily buy the entire company at today’s price with the intention of holding it for many years, if not forever.”

It is self-evident that you cannot reach this level of conviction if your don’t understand a business. Understanding a business can be defined in the more generic sense of having a deep insight into the business  – how it operates and makes money – and also in the more specific way in which Buffett uses it – having the ability to project what earnings will look like in ten years with a high level of certainty.

4.  Buy Good Businesses. AltaRock invests in companies that have a durable competitive advantage – Buffett’s moat – and that are highly profitable. They grade their holdings’ competitive position on a scale of 1 to 10. Specifically, they are looking for companies that possess some combination of economies of scale, network effect, or strong brand. See Competition Demystified by Bruce Greenwald and Judd Kahn for an in-depth treatment of these competitive advantages.

Their investments have an average profit margin of 33% vs. 6% for the S&P 500. They are not looking to beat the performance of the market by guessing, but by buying pieces of businesses that collectively have superior economics than those of the index.

They also want businesses that achieved good results without undue leverage – too much debt – and that have both a strong balance sheet and strong free cash flow. They note that their investments are producing cash flow equal to their earnings. Some businesses and industries consume far more cash than what is reported as GAAP earnings, leaving little leftover for shareholders. Over time, this is reflected in the price of the stock.

Finally, they want to invest in businesses that have a good growth platform where there is a basis for projecting growth out both 10 and 30 years.

5.  Invest in Companies with Great Management. AltaRock looks for managers who they can trust to return cash to shareholders if they cannot find additional high-return uses of capital. They judge this by looking at the long-term track record of management. Trust buy verify.

When considering an investment, go over the financials for the past ten years and see what management did with the cash. Steer clear if there is a history of poorly allocating capital, for example using undervalued shares to make an acquisition at an inflated price, or of disgorging an unfair share of the profits.

Tomorrow, I will look at AltaRock’s approach in light of the remaining five tenets my investing blueprint.

Bruce Berkowitz’s Game Plan for Getting Rich

I’m a big fan of focusing on the investing process and letting the outcome take care of itself. As I have written before, in this regard investing is like the draft in pro sports. You can’t really tell how well you’ll do for a number of years, so you better focus intensely on the process.

That was the lesson from Michael Lewis’s bestselling book Moneyball which chronicled how Billy Bean, despite lacking funds to compete head-on with the dominant baseball franchises, built a championship team by drafting unknown and lesser known talent using a superior recruiting process.

Today, Bruce Berkowitz is a financial celebrity with $15 billion under management. Over the past decade, he trounced the S&P 500, delivering annual returns of approximately 13% versus a loss for the index. Ten years ago he was virtually unknown with only $11.5 million under management. Today his results attract billions of new investment dollars, yet it was his process that got him there. He laid it out in an October 2, 2000 article in BusinessWeek.

I think our philosophy makes a lot of sense. We’re doing nothing more than what the wealthiest individuals in the world have done. We act like owners. We focus on very few companies. We try and know what you can know. We try and only buy a few companies which we believe have been built to last in all environments. We recognize that you only need a few good ideas in a lifetime to be fabulously wealthy…. We’re always trying to wonder what can go wrong. We’re very focused on the downside.

Here’s my brief take on Berkowitz’s approach.

Invest like the wealthiest individuals have always done. Recently several articles were published about Tiger 21.  According to an article published on fool.com, Tiger 21 is, “A peer network of 140 ultra-high-net-worth individuals who collectively control $10 billion in investable assets (i.e., the average member’s assets exceed $70 million). The group’s top holding is Berkshire Hathaway. Other top holdings include Brookfield Asset Management, Leucadia National, Loews and Markel, all of which follow the same principles – for example, as found in this list – that Berkowitz and Buffett use in allocating capital.

Act like owners. This is one of the ten tenets of my investing blueprint. Most people treat stocks like pieces of paper that can be bought and sold on a whim as they try to guess and exploit short-term price movements. This doesn’t work because in the short term chance and psychology drive prices and these cannot be predicted on a consistent basis. Do your homework and buy a fractional piece of a great business you understand. Then, be patient and let it compound.

Focus your investments. It’s hard to come up with a great idea – one you truly understand and where everything lines up. When you do, reason dictates that you make a meaningful commitment. Also, why waste time with your 30th best idea, if your best idea, or your second best, is available at a reasonable price?

Concentrate your research on what is knowable. Be true to yourself. Use checklists and be on guard against your behavioral weaknesses. Over confidence bias is very easy to fall prey to. Get the facts by doing the work yourself, i.e. reading the 10-K’s and the 10-Q’s. Some things are important and knowable, some things are important and unknowable – concentrate on the former, don’t waste time on the latter.

Buy companies that are “built to last in all environments”. Find companies with durable competitive advantages that can ideally hold up in both deflationary and inflationary environments. Buffett has said that a business’s moat is the most important consideration when making an investment.

Understand that you only need a few good ideas to get rich. Be patient. Munger says that intelligent investing is like patiently fishing at a stream where a fish may only come by once a year.

Worry about the downside. A lot of people have gone back to zero. Never do that. Learn what you’re doing and focus on avoiding permanent loss of capital. Don’t overpay and always insist on an identifiable margin of safety.

How to Crush the S&P 500: FPA Capital’s Recipe for Success

For the last 20 years ending March 31, 2010, the FPA Capital Fund has generated an average annual return of 13.94% compared with a return of 8.66% for the S&P 500 stock index. That’s a margin of 5.28% per year.

To put that in perspective, if you had invested $100,000 in the FPA Capital Fund on September 30, 1990, over the next 20 years it would have grown to $1,359,954 compared to $526,495 if the money was invested in the S&P 500 stock index.

The fund’s manager, Bob Rodriquez, although perhaps not as well known as other prominent investors, is in my judgment one of the best investors you’ll find anywhere.  He is worth studying, and I intend to cover the fund on this blog.  Bob Rodriguez is currently on a one-year sabbatical and the fund is now managed by Dennis Bryan and Rikard Ekstrand who have been with fund for nearly two decades.

Readers of this blog know that I have published my investing blueprint which puts forth my investing process and which is based largely on the teaching of Warren Buffett. I am a big believer that, in order to be successful over the long-term, an investor should spend a lot of time thinking about and defining his or her own investing process.  There are numerous similarities between the investing blueprint and the approach taken at FPA.

In their semi-annual letter dated September 30, 2009, Bryan and Ekstrand lays out the investment process that Rodriguez developed and which has driven the funds superlative inception since its inception.

Namely, our investment strategy is to own a concentrated group of businesses with leadership positions that are trading substantially below their intrinsic value and hold those investments for the long term. The strategy also includes owning companies that have a strong management team with a proven track record of success and that have a history of good profitability. That is, we do not want to speculate that a company might one day become profitable, rather we want to see a history of good returns on capital and profits.

The investment strategy further endeavors to invest in companies with strong balance sheets, exhibited by limited private or public debt. Lastly, our strategy embraces an “ownership” mentality rather than Wall Street’s commonly held view today that stocks only should be “rented.”

Our long-term view allows to us to increase the odds of compounding our clients’ assets at attractive returns, and not be seduced into selling a holding because of short-term perception changes by other investors or traders.

Our investment process boils down to searching for and understanding why industry leading companies are selling at bargain prices, and then determining whether they ought to be included in our clients’ portfolios. The process starts with identifying the companies that meet certain quantifiable metrics. For example, we want to buy small- to midcapitalization companies so we screen for companies within a range of market capitalizations between $1 billion and $4 billion.

We have several other key metrics for which we screen and additional ways to identify our initial list of potential stocks for the portfolios, including identifying companies whose stock prices are trading at their 52-week low.

After we identify potential investments, we then start a thorough fundamental analysis that often quickly weeds out many companies that passed the initial identification stage. The analysis includes a rigorous review of a company’s financial statements, often extending back a decade or longer. This step also includes assessing the company’s operations and its competitive position; our goal here is to avoid value traps.

The fundamental analysis can take many months to complete, and sometimes ends because we cannot sufficiently understand the risks posed by owning equity in a complex or challenging business.

The third step is to put all the companies which have passed the first two steps through a valuation analysis. This step includes analyzing a company’s valuation based on its sales, earnings, cash flow, and book value.

Finally, the companies that pass all three steps are then candidates for inclusion in our clients’ portfolios. At this point we may end up with between 20-40 companies for the portfolios that we manage, and three industry sectors often represent more than 50% of the portfolio’s assets.

The important factor to remember is that we have been executing this strategy everyday for nearly the past two decades at FPA, and Bob has been doing it for the last twenty-five years at our firm. We do not expect any changes to this fairly simple investment strategy, but the key is to execute the strategy when the valuations warrant either a buy or sell of a security.

One of Bob’s favorite terms is that we like to invest in the “land of tall trees.” That is, we don’t want a bunch of small positions, but rather a few great saplings that will grow as their dominance in the market earn larger profits for shareholders.

Related links:

Buffett and the Investment Process

Buffett does not believe that successful investing is a function of exceptionally high IQ or inside information.  According to Buffett, investors simply need a rational framework and the discipline to control their emotions.  Buffett has such a framework which he has used to amass his vast fortune.  In contrast, most investors have no such framework and are therefore thrown about by investment fads, faulty theories and emotions.  Often, their methods amount to little more than buying stocks because they going up and selling them because they are going down.  From time to time, these investors obtain a good result and mistakenly attribute it to skill.  These premature declarations of victory are frequently followed by recurring poor outcomes that can permanently destroy capital and erode investor confidence.  These investors not only lack a rational framework, but also they fail to make the fundamental distinction between process and outcome.

To understand this distinction, imagine a gambler playing high-stakes black jack at a crowded table.  After placing a large bet, he draws a hard 17 with his first two cards.  Instead of standing on the hard 17 as the mathematics of optimal blackjack play dictate, he motions the dealer for a hit and draws a 4 for a perfect 21.  In this case, the gambler gets a good outcome but his process is flawed.  He may have won the hand, but in the long run he will produce a poor outcome – he will lose a lot of money – if he continues to use a poor process – ignoring the mathematical rules of optimal blackjack play and playing by gut instinct.  Casinos understand this very well and relentlessly focus on having a good process, which for them means only playing games where the house has a mathematical expectancy of winning.

There is a strong tendency if you get a good outcome to mistakenly attribute it to skill.  This is dangerous because it can lead to costly mistakes and will fail to produce consistently good outcomes.  This is why Buffett says that during a bull market you don’t know who is swimming naked until the tides goes out.  A sports team may win some games with a bad process, but you cannot build a championship organization without a good process.   Moreover, the inherent long-term nature of many endeavors makes focusing on process even more important.  For example, it takes five years to know the outcome of a baseball draft.

If you want to improve your investment results (outcomes), thoroughly review your investment process and make changes wherever necessary.  Reviewing my investment blueprint may help you do this.

Sequoia Fund Still Going Strong

There was a good article in the Wall Street Journal this morning: Sequoia Fund Sticks to What Works – WSJ.com.  This fund is worth studying as they have one of the best long-term investing records that you’ll find anywhere.  If you had invested $ 10,000 when the fund started on July 15, 1970 and you reinvested all capital gains and dividends, it would have been worth be worth $1,848,293 on December 31, 2009.  This is a compounded annual gain of 14.3%.  (No adjustment was made for taxes.)

A 2008 article in Morningstar explained the fund’s secret sauce by saying there is no secret sauce.

Outstanding implementation of a straight-forward process is Sequoia’s hallmark. Simply put, the team executes better than nearly everyone else. Chatting with Goldfarb reminded me that Sequoia usually makes its money buying proven firms that are hiding in plain sight. This isn’t cigar-butt investing. Goldfarb and his team don’t bet on struggling firms with uncertain futures or on flavor-of-the-month newbies. Rather, they focus on understandable businesses that consistently generate strong returns on equity. Passionate managers with skin in the game are icing on the cake. That’s it. Like Buffett, the Sequoia team’s preferred holding period is forever.

The fund has built its success by doing in-depth research and focusing its capital on good businesses with good management.  And they are long-term investors. My Investing Blueprint comprises the same proven principles.

I went back and read the fund’s 2009 annual report and offer the following observations. The first regards the opportunity to invest in a number of mega-cap stocks that are currently cheap relative to the S&P 500 index such as Johonson & Johnson, Procter & Gamble, Coca-Cola and Exxon.  They prefer to invest in situations where their research gives them an edge.  (No edge = no investment.)

We get a good question from time to time asking why we don’t simply own blue chips. Clearly, stocks like Johnson & Johnson, Procter & Gamble, Coca-Cola and Exxon are attractive relative to the Index. Our stock selection tends to be driven by research, and we strongly prefer to own businesses where we believe — not always correctly — that we have an edge in information. Simply put, we try to know more about our portfolio companies than other investors do. That helps us make good decisions. We don’t own many mega-cap businesses in large part because we don’t think we could have an advantage in research. Johnson & Johnson has 22 businesses that generate more than $1 billion a year in revenue. It would be nearly impossible for us to know more than “Mr. Market” does about JNJ, and so we tend to avoid the stock (we avoid technology stocks for similar set of reasons). This is not a commentary on JNJ so much as on our investment process. Even when blue chips are tempting, we know that our discipline has helped us avoid mistakes over the years. We might in the future own specific blue chip stocks, just as we own Berkshire or Wal-Mart, but we probably won’t ever buy a basket of stocks because they appear cheap.

They have made a decision to pay more attention to macro-economic factors. However, they are not trying to make any macro-economic predictions; they are simply trying to think though how macro-economic factors would impact their investments.  This is a modest but realistic approach to thinking about macro economic issues and is consistent with Bruce Greenwald’s thought’s on lessons learned from the financial crisis.

Finally, they do not make the mistake of confusing risk and volatility.  Like Buffett, they prefer a lumpy 15% to a smooth 10%.  (For the record, I’m not sure the smooth 10% is even available anymore, if it ever was.)

While our 2009 results were disappointing, we know that a concentrated portfolio of stocks will not track the results of the S&P Index closely from year to year. Over time, a well selected portfolio should outperform the Index.

There is a lot to learn from this fund and the way they do business.

Here are some links you may find helpful.

My Investing Blueprint

In order to be a successful investor, you need a proven, rational framework.

In my Investing Blueprint, I’ve taken my years of studying the investment process and distilled it down into ten steps.

The ten steps are simple and straight forward, but they require commitment and work to put into practice.

This process has been proven to work over and over by some of the greatest (and wealthiest) investors in the world.

I believe it is the best risk-adjusted way to achieve long-term success in the stock market.  Students of Warren Buffett will immediately recognize that the following ten steps are largely based on his teachings.  I am grateful to Warren Buffett and many others who have shared their insights and experience.

I strive to follow this blueprint in my own investing and believe it will help you if you learn it and put it into practice.

It serves as a great checklist that you can use to evaluate your investing behavior and achieve success as an investor.

Here’s the blueprint:

1. Search Broadly and Continually for New Investment Ideas.

To a large extent, finding great investments is a numbers game.  You need to look at a large number of companies before you find a truly great opportunity.

In this regard, its not that different from a sales funnel.

In order to close a sale, a salesperson might first need to make one hundred cold calls.  Great sales people realize this and do the necessary seed work to meet their goals.

When Buffett was getting started, he took the Moody’s Manual and went through it page by page in alphabetical order so he could look at every company.

2.  Act Like an Owner.

You need to think of yourself as a business owner, not someone who buys a piece of paper and then sells it a few days or weeks or months later.  This is not the way to build wealth in the market.

Your objective is to buy a piece of a great business and then hold on tight for many years as the business develops and throws off cash.

Don’t let macroeconomic concerns get in the way of your primary objective.

Imagine if you had an opportunity to buy the best business in your city, one that had been around forever and that prospered in good season and bad.  Would you take a pass simply because of macro-economic concerns?

A truly great business is probably the best way to protect and grow your purchasing power, regardless of economic conditions.

3.  Only Buy Things you Understand.

This seems obvious, but it is violated all the time.  You would never buy an entire company if you did not thoroughly understand the business.  Otherwise it would be impossible to evaluate its long-term prospects.

This requires thorough research.  Think of yourself as an investigative journalist who is trying to determine the value of the company.

One reason so many people violate this principle is that they do not view investing as buying a piece of a business.

Often, they buy a stock simply because it is going up, thinking that they can sell it to someone else at a higher price and make a quick profit.

If you don’t know what you’re doing, sooner or later you are going to get burned.  Think of all the real estate “investors” who thought they were going to get rich flipping houses.  Did they really understand real-estate investing?

It worked until it didn’t.

Focus your efforts on a few industries that you truly understand.  Remember, every time you purchase a stock there is someone on the other side of the trade.  If you’re not highly certain that you have an informational advantage, you should take a pass.

One quick test is to imagine that you had to give a presentation on a stock you want to buy to a room full of savvy industry veterans and then take their questions.

How would you do?

Be honest with yourself.  If you couldn’t do it, maybe the purchase is not such a great idea.

4.  Buy Good Businesses.

Even the best management teams run into trouble when the fundamentals of the underlying business are bad.  Turnarounds rarely turn and often end up losing investors a lot of money.

A good business, on the other hand, throws off a lot of free cash that can be distributed to shareholders or used for reinvestment in the business.  A great business can sustain cyclical downturns and external shocks.

Look for businesses that have generated a high return on invested capital over a long period of time.  Also look to see if the company has enjoyed a steady, growing market share.  These are excellent signs that the company is a good business.

Above all, you must determine if the business has a durable competitive advantage.  Capitalism is brutal: the process of creative destruction is continuously at work as successful industries and businesses attract capital and competition.

Having a durable competitive advantage provides a margin of safety by making it difficult or impossible for competitors to attack the business and reduce its profits.

5.  Invest in Companies with Great Management.

Look for talent, a proven track record and high-integrity.

High integrity may be the most important because, if it is lacking, management has the power to rob shareholders of their fair share of the profits through excessive compensation, empire building and outright theft.

Execution is critical to business success.  Even a business with great economics requires good management to grow the business and evolve it to meet ever changing conditions and new challenges.

Why not insist on investing alongside the very best managers available?

6.  Buy the Cheapest Business Available.

Naturally a prospective investment needs to pass your filters, but among those that do, you should invest in the cheapest available.

By cheapest, I mean the one that will deliver the most cash back on a time adjusted basis for the cash you lay out in making the investment.

Before making a purchase, always write down why the business is a good value.

7.  Focus on Your Best Ideas.

Good ideas are hard to come by.  Many great investors consider themselves fortunate if they can generate one or two good ideas a year.

When you find one, it should be fairly obvious that you want to invest a meaningful amount of your capital in that business.

Think about how you would operate if you were going to invest in one or more private businesses in your town. Would you want to own fifty or a meaningful piece of the very best five or ten?

Many highly successful businesspeople have their entire net worth invested in their business or farm.

Learn what you’re doing and your margin of safety will come from truly understanding a few great companies where you can watch your capital multiply over the years.

8.  Practice Patience.

You need patience both when looking for new investments and waiting for them to payoff after you make a purchase.   There is no way to know how long you must wait before a good idea comes along.  Your only choice is to prospect away until something comes along where the odds are overwhelmingly in your favor.  After you make an investment, you do not know how long it will take for its intrinsic value to be recognized.

The big money is made by sitting tight.  A great business doesn’t mechanically follow a quarterly cycle but develops overtime as its superior economics play out in the marketplace.

It takes time for this to happen.  Great wealth has been generated by practicing patience.

Finding a great business that is growing is rare.  Plus, as the investment grows in value you get to enjoy an interest-free loan from the government in the form of deferred taxes.  When you find a situation like this you should sit tight and let it compound.

9.  Avoid Stupid Mistakes.

What type of mistakes do investors make?  Let me count the ways.

It’s amazing how much success you can have by simply avoiding big mistakes.

What am I talking about?  Flipping stocks, buying things outside your circle of competence, investing in low return businesses with no barriers to entry, overpaying for stocks, using leverage, not doing your homework.  The list goes on and on.

The most common mistake may be letting the market price dictate the value of your investments rather than doing your own homework and making your own informed determination of value.

To be successful you need to be honest with yourself and identify your problem areas so you can take steps to improve.

Also, don’t forget about sins of omission.  It’s not only what you do, but also what you DON’T do that can cost you.

When you identify a great company, at a great price, and you fail to make a sizable investment, it can cost you a lot of money.

10.  Be a Learning Machine.

Read constantly and broadly.  Carefully study the core foundational books on investing.  Take an industry and try to master how it works.  Don’t go an inch deep and a mile wide.

Many investors have gotten rich by focusing on a few industries and learning them well.

Investing is a highly competitive endeavor.  To succeed you need to be constantly learning and growing.

Plus, investing is evolving.  Although the core principles are timeless, what worked twenty years ago may not work today.   Also, the companies you own are changing and you need to stay on top of them.

The good news is that this type of learning is cumulative.  Over time, you will develop a rich store of knowledge and experience that can’t help but improve your investing results.

Summary

If you learn the ten steps and work hard to put them into practice, you will become a successful investor.

I’d love you hear what you think.  Please share your own process.