TAKEAWAYS AND ACTION ITEMS Companies that can make you money are those with a

Takeaways and action items companies that can make

This preview shows page 90 - 94 out of 263 pages.

TAKEAWAYS AND ACTION ITEMS Companies that can make you money are those with a big Moat that are managed by passionate and trustworthy people. Find companies with the three Ms and you have the recipe for making money. Find businesses that relate to your passions, talents, and how you make and spend your money. Conduct the three Ms analysis—only own companies that have Meaning, Moat, and capable Management. Do your homework. Review my articles at PaybackTimeBook.com to learn how to use a variety of Rule #1 and Payback Time tools to
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scan the market for acceptable stockpiling candidates and to analyze their management teams.
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W PAYBACK TIME MEANS “NO FEAR” Too many people today know the price of everything and the value of nothing . —A NN L ANDERS hat to stockpile is the harder question than when. There aren’t many (or any) perfect businesses, and there aren’t going to be thousands of wonderful businesses that you’ll be able to understand well enough to stockpile them. Once you’ve found that right business, knowing when to start stockpiling it is easy: You buy shares when they are on sale. We call “buying on sale” buying with a Margin of Safety (MOS) in Rule #1 investing. Those are the three most important words in investing. They are especially important when it comes to stockpiling. All you have to do to get a big MOS is to know the value of the business you are buying—as a business—and then wait to buy it until the market drops the price quite a lot lower than the value. Be forewarned: just because the market drops from 14,000 to 7,000 doesn’t mean everything that went down is suddenly “on sale” and priced below its value. Some companies can still be overpriced even after a market meltdown. Think of buying stock as you would buying a car. You can buy a beautiful Maserati and get a super deal or get cheated. You ask: Are the fundamentals good? Is the drivetrain in good shape? Is the body rusting out? Essentially, if you get those kinds of questions answered correctly, you can put a value on the car. Sure, there are superficial problems to
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consider, too—cracked windshields, dings in the body, torn seat covers, blown tires, or a bad radio, for instance—but you can put a solid cost estimate on those cosmetic problems, adjust what you’ll pay for the car, and still get a really good deal. If the fundamentals are bad, however, if the engine or tranny is shaky, and the body has a lot of rust, the potential cost to you for the car might be much more than you can ever sell it for in the future. If you buy a fundamentally unsound car at any price, you lose. But if you get a fundamentally sound car on sale, you can make money in days. This is why understanding how to arrive at value is so critical to stockpiling. Investors have gotten very rich buying companies, but unless they were very lucky they only got rich if they knew the value first.
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  • Spring '20
  • Warren Buffett

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