Value Investing

Robert Olstein’s Lucky Eleven Top Investment Tips

I’m reading this book “The Best Investment Advice I Ever Received” by Liz Claman. There are a few points from Robert A. Olstein of Olstein & Associates.

Lucky Eleven Top Investment Tips:

  1. Attempts to predict movements of the stock market in order to profit therefrom is a long-term-failure process.
    • Market risk can be controlled somewhat by allocating your portfolio between riskless fixed income securities and equities, rather than diversifying your portfolio according to artificial investment barriers such as large-cap, small-cap, growth, value, and so on.
  2. Accurate economic forecasts are largely unnecessary.
    • Interest rates and future cash flow (as opposed to reported earnings) are the only important economic variables to consider when valuing a stock
  3. Current news is of little help in managing your money.
    • The market looks to the future and money is made when investors spot or identify deviations between short-term perceptions and longer-term reality.
  4. The three most important characteristics to consider when selecting a stock are price, price, price.
    • Paying the wrong price for a good company is the equivalent of buying a bad company.
  5. Investment managers making the fewest errors are usually the best long-term performers.
    • Thus, consider downside risk when purchasing a security before considering upside potential.
  6. The best way to protect against financial risk is to buy companies that generate excess cash flow (more cash coming in than going out after capital expenditures and working capital needs) at a discount to intrinsic value (defined as the present value of future excess cash flow).
    • Excess cash flow companies can raise the dividend, buy back stock, make acquisitions when others may not, do not have to adopt short-term strategies that are not in the long-term interest of the company when problems develop, and are also good acquisition candidates.
  7. The most important virtue of a value investor is patience.
    • Periods of misperception or negativity, which produce discount prices, may take considerable time to unwind. However, the rewards when and if the misperception is corrected can product favorable investment results.
  8. The desire to be right all of the time is a roadblock to being right over time.
    • Waiting for a catalyst to appear before buying an undervalued stock will usually result in the purchase of a fully valued stock. The timing in value investing is paying the right price.
  9. Setting up artificial barriers to investing can limit performance.
    • The search for value cannot be limited. Value can occur in large companies, small companies, cyclical companies, growth companies, technology companies, etc.
  10. A value investor needs to have a strict sell discipline that reaches conclusions based on excess cash flow valuations rather than price momentum or crowd psychology.
    • Tax implications of stock sales must take a backseat to overvaluation, or you may never have any taxes to pay.
  11. Even the best managers go through periods of under-performance.
    • Pick managers who have an investment discipline you can relate to and do not get involved in short-term performance or relative performance measures. Long-term (three to five years or more) absolute performance is the ultimate measure of investment success.


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