Reflections on the Ten Attributes of Great Investors

the ability of  accounting numbers to represent economic value is severely limited. Next, he emphasized that competitive  strategy analysis and valuation should be joined at the hip. The litmus test of a successful strategy is that it  creates value, and you can’t properly value a company without a thoughtful assessment of its compet... See more

Thefirst is a fundamental understanding of how a company makes money. The idea is to distill the business tothe basic unit of analysis.  The second dimension is gaining a grasp of a company’s sustainable competitive advantage. A company has a competitive advantage when it earns a return on investment above the opportunity cost of capitaland ea... See more

Yet investing is an inherently social exercise. As a result, prices can go from being a source of informationto a source of influence.  Great investors don’t get sucked into the vortex of influence. This requires the trait of not caring what others think of you, which is not natural for humans. Indeed, many successful investors have a skill th... See more

9. Position sizing (maximizing the payoff from edge).

The goals of  financial statement analysis are twofold. The first is to translate financial statements into free cash flow. The  second goal of financial statement analysis is to make a link between a company’s strategy and how  it creates value. One simple way to do this is to compare, line by line, two companies that are in the sam... See more

Learning to focuson process and accept the periodic and inevitable bad outcomes is crucial.Great investors recognize another uncomfortable reality about probability: the frequency of correctnessdoes not really matter (batting average), what matters is how much money you make when you are rightversus how much money you lose when you are wrong (slugg... See more

3. Properly assess strategy (or how a business makes money).

5. Think probabilistically (there are few sure things).

Great fundamental investors focus on understanding the magnitude and sustainability of free cash flow.  Factors that an investor must consider include where the industry is in its life cycle, a company’s  competitive position within its industry, barriers to entry, the economics of the business, and  management’s skill at allocating ... See more