1. Diversification is an important concept in investing but does not have to be an all-or-none strategy. You should avoid diversifying extensively if you have the ability to analyse companies and their value. But if you cannot, you should diversify extensively using index funds if possible.
2. Even if you start building wealth with a concentrated approach, you should pay more attention to diversification as your wealth grows.
3. The key to diversification is having uncorrelated assets. When adding stocks to your portfolio, avoid those that are exposed to the same risks. It may contain few stocks or many stocks. Buffet says a six stock portfolio is enough for those who know what they are doing.
4. Spend some time on deciding how much money you want to put in stocks. If you are going to be a truly long-term investor then invest a significant amount of your money in stocks.
5. Pay as little as possible for any stock. For a stock with high growth prospects, you can pay more but not too much. At the same time you should also invest in low growth stocks with ridiculously low prices.
6. When you buy a stock, the price that you pay for it matters. Even if it is a great company, make sure you do not pay a lot for it.
7. The markets are not always right. Stay alert for opportunities to buy stocks when they are obviously undervalued.
8. The best way to find underpriced stocks is to discount projected cash flows and compare them to the current price. If you can find value with a conservative calculation, you may have found an undervalued stock.
9. Over long periods small cap and value stocks do very well. Over shorter periods less than or equal to 12 months momentum does better.
10. Long-term buy and hold has lower costs and you can have an easy paced style. Momentum has higher costs, requires harder work and is more stressful.
11. The typical individual investor cannot buy and hold businesses like Buffett does. He should be willing to sell the stock when the price exceeds the value significantly. You also need to diversify to control risk. You need to remember that you will never be in a position to influence managerial decisions.
12. Wait for the price to be reasonable before you buy. Make sure it is a company you would want to be invested for the long-run. Look at the quality of the managements. Buy stocks globally. If an investment does not work out, sell it and move on.
13. In investing whether you are right or wrong can take many years. In troubled companies, activist investors can unlock value. Acquisitions can be extremely risky. Capital intensive businesses are usually best avoided in most situations. Just because the stock of a high growth company plunges, that does not necessarily make it a buy.
– notes from the book, “Even Buffett isn’t perfect” by Vahan Janjigian