An extreme summarised version of the book in 10 points:
1) Most people should not attempt to invest in individual stocks.
2) 4 ways of dealing with cash on hand: put in bank, put in (nearly risk-free) government bonds, put in corporate bonds or invest in the stock market.
3) Whatever you do, as a rational investor, always invest at a rewards level higher than the risk-free rate. If the risk-free is 5%, make sure your expected returns from investing is higher than 5% to compensate for higher risks.
4) Key idea of the book is to buy GOOD COMPANIES @ BARGAIN PRICES.
5) GOOD COMPANIES i.e. companies who has a good return on capital (ROC) = EBIT/(net working capital + net fixed asset). The higher the ROC the better the company as it uses its capital more efficiently which implies a certain competitive advantage.
6) BARGAIN PRICES i.e. companies with high earnings yield = EBIT/ENTERPRISE VALUE
7) How many companies to buy? -> 20 to 30 TOP GOOD COMPANIES @ BARGAIN PRICES
8) Time frame: holding each of the stock for 1 year and repeat the selection in a year's time.
9) Results: Note that over the LONG RUN i.e. 5 to 10 years, the overall returns should beat the market.
10) Special note: it means that in the SHORT RUN, it is very possible to lose out in a few years following this method. The idea is to COME OUT ON TOP AND BEAT THE MARKET ****OVER THE LONG RUN****
10)
Comments