Investing in Turnarounds

“Our favorite way to get paid is to find companies with below-normal margins for reasons that are fixable and in their control, and to which the market is not giving the benefit of the doubt. In those, you get paid two ways – if you’re right, both the earnings and multiple improve”

Stephen Roseman, Value Investor Insight, 9/29/2006

The Difference Between Trading and Investing

"Trading is focused on short-term price changes that occur for any variety of reasons. Investing is a process focused on future economic cash flows from business activities that ultimately determine the value of an investment"

Gary P. Brinson, CFA FAJ Vol. 61 Number 4

Bull Market Characteristics - Benjamin Graham

The common characteristics of a bull market
1. A historically high price level
2. High price/earnings ratios
3. Low dividend yields as against bond yields
4. Much speculation on margin
5. Many offering of new common-stock issues of poor quality

Benjamin Graham, The Intelligent Investor, Chapter 8

Ben Graham Quote - Investor vs Speculator

"Traditionally the investor has been the man with patience and the courage of his convictions who would buy when the harried or disheartened speculator was selling."

[Benjamin Graham, Security Analysis - Sixth Edition, p.35]

Why Money Managers Underperform the Indexs

Warren Buffett's Five Reasons why most active Money Managers Underperform the Indexes

1) Group Decision Making
2) Tendency to conform portfolio & policies to what other large, well-regarded institiution are doing
3) (Most Important) Asymmetry of risk & reward - rewards for straying too far from the path are not enough to offset the risks - "long headline risk"
4) Over-diversification
5) Inertia - once these things are in place they are hard to take out

[from OID - May 20,2008]

Wisdom from Seth Klarman

It is vitally important for investors to distinguish stock price
fluctuations from underlying business reality. [Margin of Safety, Seth Klarman, p11]