One of Warren Buffett’s favourite tips is to invest in businesses that you would be happy to hold even if the market closed for the next couple of years. The principle behind this is to invest in strong businesses that grow in intrinsic value over time. The investor doesn’t need to do anything except sit by and watch the returns compound. But apart from being a path to riches this also has benefits for an investors life at large and I think it is an essential consideration when entering an investment – because even though the market wont close for 2 years, unforeseen events can turn our lives upside down. How would your portfolio do if you couldn’t trade for the next few years?
Michael Burry is one of those investors that is famous in certain circles, yet most people have never heard of him. Burry was able to secure a return of almost 250%, in a period the S&P was actually down and he grew his fund to $500m under management. He also made a fortune during the financial crisis by recognising the impending collapse of sub prime mortgages. This is a short bio of his investing career as well as some of his early blog posts so you can see how he analyzed investments.
For those that don’t recognise the name, Ruger is a brand of gun. In the last couple of years gun sales have exploded in the U.S. as the Obama administration’s stance on stricter gun controls has sent people rushing out to buy guns for fear they will soon be restricted. Despite record sales the market is very pessimistic about gun manufacturers in general, RGR trades at a P/E of just 11.2 and Smith & Wesson (SWHC) trades at just 9.6. That is surprising when you take a look at their financial results.
A list of useful links to reading material that I’ve come across in the last few weeks. Some good weekend reading included.
Stock screens are a very useful tool for investing. We can’t go through every single stock, there are thousands in the US alone, so cutting that list down by some parameters that make the companies more investable saves time and energy.
But it is also something that most retail investors do very poorly, and most follow the same sorts of rules as each other which means bargains are so much harder to come by. So in this post I go through the common pitfalls of screening and how to adjust your screens to capture more undervalued companies that the rest of investors miss out on.
Last time I went through a case study on Tenneco and valued it as if I had found it in early 2010. Now it’s time to go through what actually happened to the company and whether my valuation was correct.
I came across a company which I thought would make an interesting case study – it is one where a high amount of debt is in play – which I usually pass on but not today. I will go through my valuation as if I had found it in 2010, and give readers the information they need to do their own valuation with me. Then we’ll see who’s right!