Our Stocks Investment Philosophy

Analyzing and investing in stocks have been my passion for years. Personally, I feel it is one of the rare few endeavors that taps into our logical, mental and emotional faculties. At the end of the day, not only do we understand how things work in a business but we began to understand more about ourselves and our biases as well as our friends and family members whom we interact with in making investment decisions.

Below are some reasons why I decided to start this blog. Throughout the blog, you will notice that I like to use words like 'we' or 'our' to give credit to people, friends, authors and investors who gave incredible insights to a particular investment concept, business or a specific company during the process of learning, interactions, discussions and research.

The underlying purpose of this investment blog is mainly to:

1) Briefly summarize our investment thesis and pen down our thoughts in a simple and coherent manner

2) Keep track of the main reasons that we feel justify our initial purchase in the shares of a particular business

3) Reinforce and relearn investment concepts

4) Subject our theses to scrutiny and feedback so as to gain new insights in our investment journey

Our Stocks Investment Philosophy

Security selection requires a skillful balance between the facts of the past and the possibilities of the future. This can be attained through the use of right strategy and knowledge, keen awareness about one’s own emotional and logical faculty in making judgments and decisions as well as experience.

A brief summary of our investment framework which we adhere to are as follows:

A Business Perspective  

This is the core philosophy that encompasses all others. We view a stock as a piece of a business and in doing so, we remain focused on the cash the business will generate and on its financial position as opposed to the opinions of other investors in the market. Both the statistical exhibits as well as the qualitative background of the company are examined. We make sure we understand the business to a reasonable extent before proceeding.

Conservative Valuation

If the business passes our initial analysis, we will estimate how much the business is worth commensurate to its assets, earnings and dividends. The valuation should mirror closely to what a knowledgeable and prudent businessman will pay if given an opportunity to invest in the same business over which he could exercise control.

Margin of Safety

The unifying theme here is that we try to buy things on sale - our opportunity comes when we can capitalize upon a favorable difference between price on the one hand and indicated or appraised value on the other. Margin of safety is both a source of potential profit as well as downside protection.

Diversification

Because the future is uncertain, the margin of safety is not a guarantee of profit and hence the need for diversification to better capture individual probabilities of profit potential as well as spreading unsystematic risk.

Patience

We do not presume to know when or to what extent we will be rewarded for identifying a security that is mispriced in the market but we know from experience that most will eventually. Because we don’t know when, we take most positions with a long-term perspective and this necessarily requires patience. A catalyst is a bonus but not compulsory during the decision-making process.

I'll be extremely interested to know from you guys what are the other qualities or features in your investment process that you feel is indispensable and should be included in the overall investing framework. Do leave your thoughts in the comments section!