Learn to Invest Correctly


Learn to Invest Correctly

Learning to Invest Correctly is a process much like investment.

It’s a process of intellectual honesty about what you know and what you don’t know. It’s a process of learning to evaluate what your Circle of Competence is and to evaluate the Financial Position of those underlying companies.

The earlier in your process you are the more conservative you should be, I never hesitate to through something in the too hard arena simply because I don’t understand it.

Don’t buy what you don’t know

It may sound simple but buying what you don’t know leads to mistakes. Mistakes in price of purchase, mistakes in price of sale, overreactions to events. An investment can be a wonderful idea for someone and an awful idea for someone else.

Financial Position

Early in your investment and investing career you will have to rely on more simple metrics like Price to Earnings and identifying Owner’s Earnings, Yield, Dividend Yield, and Tangible Book Value, and understanding the underlying factors.

Business Risk

The importance of investing in your circle of competence is because you can understand the business risks of a business. The more business risk involved the more discount an investor should demand in the investing process.

I’ve passed on pretty good opportunities because I simply couldn’t weigh the risk factors as well as I would like.

Compound Knowledge

Study and compound knowledge about the industries and companies and competitors of businesses you invest in. Understand the intent of your investment. Are you buying because of a temporary condition or because you intend to be a long term owner and love the business. The more money you have the more you should be likely to buy good businesses at fair prices.

Study and Read and Become Smarter about Investing

Never end your learning process. Challenge yourself to valuate tougher companies and be ready. Read our top books we reccommend and don’t fret if the first time it’s heavy. Many of these I’ve read countless times and worn the cover and still marvel at the advice. The first time it was a bit overwhelming but now it’s a second language to me.

Study everything we have for all our great investors which is an on going project.