Keep things simple. Simple should not be confused with easy.
Business model assessment
- Easy to understand economics
- Strong defensible moat
- Trustworthy management who treat capital of shareholders with ownerlike care
- Selling at a reasonable price
- Able to generate high returns without excessive usage of debts
Guiding principles
- Stick to companies with your circle of competence
- Ignore macro economics trends and analyst forecast
- Choosing between growth and value is a misguided one. See the business model holistically.
- A share in a business is basically a bond whose coupon rate you need to figure in yourself
- The character flaws of an individual tend to have very serious spill over effects. Always check for serious character flaws of individuals whose company you plan to invest in.
Float
- Buy cash generating assets to finance purchase of more assets
- Insurance is a prepaid model
- Blue Chip is a prepaid stamp sales model
Management of cashflow
- Give out dividend
- Share buy back
- Reinvest or MnA
The last option is almost always value destroying unless the management can generate ROI above it's current RoA rate. This is predicated upon a strong defensible moat.
Leadership
- Confidence
- Perspective
- Ability to focus
- Communication