Break down the idea into three categories
Not very appealing - re-visit later
Never: Bad management, poor industry / governance
Interesting opportunity then go through forward return analysis. This is also the time to fill any gaps in our understanding
All existing positions and new ideas are then stack ranked by future return and confidence in the idea
"Put Money to Work"
Once an idea has high forward returns and there is high conviction, it is gradually added to the portfolio.
Percentage allocation to the idea increases as the confidence increases, price falls (and future return increases). Ideally, both happens.
All positions in the portfolio are continuously assessed against other positions in the portfolio and against new ideas.
New information for portfolio positions and competing ideas is continuously reflected in our valuation assessment
Use screening software to identify good businesses selling at reasonable valuation
Investigate positions held by other successful investors
Investigate companies with similar themes, industries that we are already familiar with including old ideas
Continuously search for new ideas / opportunities
Position is sold gradually if:
Forward return of the position is among the lowest in the portfolio.
New information on the position reduces forward returns.
Conviction in the position goes down because of management action
A minimum amount of cash is kept in the portfolio to take advantage of future opportunity
Understand the business
Read atleast 10 Annual Report
Read quarterly reports, blog postings, talk to fellow investors and scuttlebutt
Understand the management
Join quarterly calls and hear management interviews
Assess how management responds in tough situation
Summarize key takeaways and decision that we have reached based on the detailed due diligence
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