Thursday, May 3, 2012

May 3rd

I've changed the name of my blog from Value Investing & Rational Trading to "Value Investing in Graham-and-Buffettville.

After another year of reading and experience, it is more clear to me that technical analysis is not for me. Seth Klarman and Warren Buffett both mentioned that value investing is really a genetic thing, you either click or do not click and I now totally agree. Charlie Munger once said " the game is so tough, why not adopt another approach- swimming as competently as you can, sometimes the tides will be with you and sometimes the tides will be against you but by and large, we are not bothered by the general movement in the market." I couldn't agree more with this. Predicting the market is extremely difficult, if not impossible and people who claim they can predict the market or have correctly predicted the market did it by luck. In the end, it all boils down to buy the business with sustainable competitive advantages you know well at a reasonable price.

Another thing I learned ( again, Warren and Charlie had told us before) is that buying shares of a great business at a fair price is absolutely better than buying an so-so business at a great price, and certainly way better than buying shares in a troubled company at a cheap price even it's a cigar butt candidate. I've seen and experienced buying troubled companies trading at a discount to their book value (sometimes even 30% to 40% discount) and it definitely does not feel good seeing another 30% or 40% drop. Examples include Nokia, First Solar, Research in Motion, Radio Shack, and Netflix. The eventual turnaround may happen, but may come with the cost of many sleepless nights. These cigar butts investments still have value in them, and you want to buy them at maximum pessimism, which is hard to predict and "lower lows" are almost certain to happen down the road. I am not sure what is the right approach to these investments but one thing I learned from my experience is that setting a larger margin of safety and wait another few months will make them even less risky investments.

There are other useful lessons that I've learned from reading and investing during last year and I will gradually put them up here.

I will be going to Omaha NE tomorrow for the annual meeting and I expect it to be the best learning experience ever. Stay tuned.

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