|"Brian Brakenridge" <email@example.com>
|Wed, 27 Jun 2001 16:21:13 +1200
Peter and Snoopy:
Great posts, simple yet informative, must be highly beneficial to newcomers and old hats alike.
Snoopy, when you next converse with Mr.. R. Baron be sure to tell him that the product of this disciplined research and focused investment philosophy is that the investor then has the ability to make significant and concentrated investments in sound fundamentally strong and growing companies.
And because she is only investing in a handful of these companies as opposed to overdiversifying she has a much more in-depth knowledge of these companies. So when Mr.. Market overreacts and oversells based on some short term bad news the focused investor can pounce on this downside and buy at good value.
Being able to make concentrated investments in a small number of companies greatly enhances the investors ability to outperform the highly diversified market indexes.
An interesting article on the subject of Focused/Concentrated investment philosophies is:
Charlie Munger summarizes it in his typical no bull to the point manner:
"The number one idea," he said, "is to view a stock as an ownership of the business [and] to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you're paying for. Move only when you have an advantage. It's very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor."
"Short term the market's a voting machine, long term its a weighing machine"