In a world where everyone is obsessed with the noise of stock price fluctuations, quarterly earnings beat or macro economic forecasts, true long-term investing is rare.

The media encourage constant activity while wisdom requires patience.

The difference between gambling in the stock market and building true lasting wealth lies in not predicting the future, but in adhering to a continuously evolving framework of picking great businesses.

Stock investing is not about trying to predict where the stock price is going to move in the next week or month. It is about positioning for success.

We position for success through a few method:

Only buying businesses that we really understand

By staying within our circle of competence, we only buy businesses we truly understand.

We cannot accurately analyze and value a business we do not understand. If we cannot explain the visibility of the business in the future or what exactly makes them different, we should not own them. Investing in them is gambling.

Buying the business that is well-run by management that think like owners

We want managers that think like owners, who treat shareholder capital with the same care they treat their own money.

We look for integrity and candor in reporting their failures, and a history of great capital allocation.

A great business run by poor management, will destroy value over time and yield bad results for the shareholder.

Not overpaying for the business

The margin of safety principle is the most critical discipline.

Price is what you pay, value is what you get.

By insisting on buying a dollar’s worth of assets for fifty cents, we want to ensure asymmetric opportunity in investing.

We want bets where if we are wrong, we don’t lose much, but if we are right, we gain a lot. The price we pay is so important because it may protect us from errors in our judgement or unforeseen market downturns.

Closing Insights

Investment is not about plenty of activity, it’s about inaction, but acting decisively when the opportunity comes.

The discipline of waiting is perhaps hardest to master emotionally. The market is generally efficient, meaning opportunities to buy great companies attractively are rare. But it will come, and we have to be ready.

Meanwhile, we should sit back, relax, sometimes for months and years doing nothing but reading and following up on the business, waiting for that rare moment where the odds are overwhelmingly stacked in our favor.

When that moment arrive, act decisively, and heavily.

Disclaimer:

The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.

Important: Please read our full disclaimer.

Disclosure:

I/we have no stock, option, or similar derivative position in any of the companies mentioned and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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