Monday, December 24, 2012

How to think like benjamin graham and invest like warren buffett

Salvage value will virtually always be inappropriate for valuing a productive asset, business or share of stock. Market-based valuation techniques that consider what other willing buyers had offered will be helpful only if the property under consideration or similar properties are regularly traded in reasonably well-developed markets. Even then, it is circular. Capitalizing earnings and discounting cash flows made the most sense for valuation.

On Circle of Competence
 
Omit from your circle businesses that are too hard for you to understand or that change too rapidly for you to keep up with. To define your circle of competence, start with your own industry. Think also about the things you buy and use and how you do so. If you simply took what you knew about an industry you worked in 10 years ago and used that knowledge to evaluate a company in that industry today, you would be at a severe disadvantage. Those who can discern trends in their industries are better able to ascertain which businesses in an industry are likely to remain or emerge as leaders. Equally important is recognizing that industries you know can be affected by other industries about which you know less.

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