A further insight from "The Warren Buffet Way" Buffet has 12...

A further insight from "The Warren Buffet Way"

Buffet has 12 tenets for selecting a stock.
...and uses the same 12 tenets to decide whether to keep a stock.
i.e. how do you measure the value of a business that is not listed on the stock market?
You look at P&L and balance sheets over a few years, assess uniqueness of their solution and capability of management.

One of those tenets is to buy at a discount to true value of the company.
It is somewhat more challenging to value a explorer/research company with no revenue.
Net Present Value is one such method.
This buying at a discount is to minimise risk.
e.g. you value the company at $1B and the MC is only $300m
That is not to say the SP doesn't ever dip below his purchase price...

Buffet never measures a company's progress or value by its share price.
He believes if the value is there, using the 12 tenets, the market will eventually catch up.
...but he does not sweat the day to day, week to week, month to month or even year to year SP gyrations.
(a lot here on HC seem to only measure a company by its share price).

Buffet is what is called a focussed investor.
Focussed investors limit the number of companies they invest in. i.e. 5 to 10
They commit their decisions and constantly review and rarely sell a position.
...and they consistently out perform the market.
(as opposed to the typical financial planner methodology of diversification and spreading risk - no offence)
In a study of 3000 focussed portfolios (for book research purposes) 40% to 60% of the time over a 15 year period they underperformed but in the years they performed it was an outsize performance that resulted in gains well above the market index.

What is one takeaway from this?
The market is not always right and many a company are either under or over valued.
...and that is what brings buying opportunities to a wise investor. e.g. RAC

Buffet would say to us that no one knows when the market will eventually catch up to RAC's true value, but it will in time.
Suffice to say keeping an eye on RAC's current and potential value and it's management capability is far more important to discuss than the day to day SP.

GLTAH