Two of the biggest investors in history, Peter Lynch and Warren Buffett, are recognized by a trick that helped them develop investment records from 20% to 30% compounded over long periods of time. Buffett summed it up in the acronym "Kiss," which means "Keep it simple, stupid!" When you really understand what it means, can have major ramifications for his wallet and help give meaning to a turbulent market.
Paragraph one of the trials
The proof that these two men is applied is more or less the same. According to sources, Peter Lynch used to start an egg timer when the phone with financial analysts and operators to force them to explain the basic premise of an idea to invest in less than a minute. Buffett recommend that you write a brief paragraph saying something along the lines of, "I'm buying $ 10000 shares of the Company XYZ at $ 25 per share, because I think (insert here the reason as the profit will grow twice as quicker than the current price-to - revenue ratio, assets are hidden in the balance sheet, there was a management change for the better, the valuation is too low, etc.) then control the situation, always aware of their basic thesis. The practical result is meat or substance of his argument of the matter is separated from the water by a nonsense. Too often, stockbrokers and financial journalists spew tens of facts that have regurgitated for 10k or an annual report. Therefore, many facts obscure the really important figures such as sales growth, profit margins, anticipated capital expenditures, expected depreciation, and return on equity. Investors instead become bogged down in the reading of a $ 12 million transactions in a company generating $ 20 billion in sales. In a vast majority of cases, such information is not particularly relevant or necessary.
Avoid multiple points
Another big advantage of "Kiss" that is basic factor in probability theory in their decisions. What you do not have: a population that has a 65% change to double over the next five years or a population that has the potential to quadruple if eight different events taking place all (perhaps a business license in a new state, new factory built, etc.), each case has a 90% success rate likely? The latter, believe it or not, has an approximate 43% chance of becoming reality - much worse than contradicts the first option! With more links in a chain, has a greater probability of something going wrong. If a population could reach 1000%, but this, trade unions should drop the demand, the supply of fuel should collapse, a bankruptcy court should compel a competitor to pay their promised pension obligations, and new management to come to cut costs and stock option, will probably be disappointed.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment