Investment Strategy/Process

• Consider carefully which strategy you want to adopt and stick to it. It's a good idea to set a clear goal for your investments, such as outperforming a specific index over time. Buffett chose a defensive strategy that allows him to outperform the index in the long run, while accepting periods of underperformance during years when the market is driven by speculation and over-optimism. Buffett’s default state is cash, and he only invests when he finds a good business at a fair price. Consider if you are strong on Quantitative factors like valuation and return on equity or Qualitative factors such as evaluating Management, Moat and finding businesses with strong future growth prospect with disruptive business models. Read more about this in the Different Strategies section.

• Overall a solid strategy is to identify strong risk/reward opportunities and take a contrarian stance when justified. If you're right and patient, capital flows will follow. Instead of chasing momentum and attempting to time the market, the focus should be on finding high-conviction bets at attractive valuations—staying ahead of the market rather than reacting to it. As Benjamin Graham taught us, the market is there to serve us, not to guide us. We should avoid following the market blindly and instead adopt a contrarian approach. Businesses with strong moats provide protection, enabling them to withstand competition and sustain healthy margins. However, adaptability is key—regularly analyzing your portfolio and reallocating capital when necessary. This sometimes means exiting most positions and concentrating on higher-conviction opportunities, with proper position sizing playing a crucial role. Ultimately, investing is about the future. Buffett simplifies his approach to investing by saying, "Find businesses where you believe they are priced the lowest relative to the discounted cash flows they will generate in the future". This means you should focus on identifying mispriced opportunities, where you have an edge in understanding the future prospects of a company.

• But keep in mind: being contrarian in itself has no value. The important part is to understand the thesis and act accordingly — regardless of whether consensus turns out to be right or wrong. Contrarianism is a method, not an identity.

• Focus on achieving strong absolute returns over the long term by investing in fundamentally sound companies trading below their intrinsic value. Short-term underperformance relative to market indices is acceptable if a company's long-term fundamentals remain intact, even during temporary price declines. Staying in cash is a viable option when no compelling investment opportunities meet the criteria for quality and value. The strategy prioritizes capital preservation and long-term growth over short-term competition with or outperformance of any index.

  Druckenmiller's forward-looking philosophy of visualizing the future and to identify opportunities before they become obvious with a theme-based investment approach (for example, AI), selecting ideas with compelling risk/reward profiles. Crucially, he evaluates his performance relative to the year’s ‘opportunity set’ rather than against the broader market.

• Start from a narrative perspective — a misunderstanding by consensus — then check if it can be mispriced. No screening. - David Einhorn

• On expressing a macro view: if you have an idea, find the most direct way to express it. Oil futures if you think oil prices will go up. Inflation swap if you want to bet on inflation. - David Einhorn

• The power of compounding is one of the most impactful principles in investing. It allows your investments to generate earnings, which are then reinvested to produce even more earnings over time. This snowball effect grows exponentially the longer you stay invested, making time the most critical factor in maximizing returns. By starting early and being patient, even small, consistent investments can grow into substantial wealth, highlighting the importance of long-term thinking in achieving financial success. Also if you can improve your annual return with only a small margin, like an additional 2% per year, over a long period of time, this will have a huge impact on your wealth.

Types of Edges: Behavioral, Analytical and Informational.

• Behavioral Edge

  Understanding market behaviors gives us a unique advantage. Because the herd only look back a short period and see it as a proxy for the future. We need to be aggressive when there's blood in the streets and values are really interesting. Likewise we need to be conservative when everything is going up. This is very hard, but when using our valuation framework as support it gets much easier. Be Greedy When Others Are Fearful and Fearful When Others Are Greedy. Data can help you spot when the market is behaving irrationally. A simple approach is to track the average P/E ratio of a specific sector over time, while more importantly, focusing on the valuations of individual companies.

• Informational/Analytical Edge

  It's IMPORTANT that you understand your specific edge. For example, if you are working in a tech company, you might have an edge in understanding tech companies. Superior insight gives superior result. Never buy a company that does not have a good future, like newspapers with eroding moats in the 90s. Use your edge to foresee the future, to find opportunities that the market has not yet priced in, like memory chips are really important for AI, and the market has not yet priced in the importance of memory chips. You need to be confident and contrarian, and also understand limitations of your knowledge, your circle of competence. You can improve your informational edge by reading books about the industry, read company reports, read reports from competitiors, ask the right questions and dig deep. You can also reach out to competitors, customers, suppliers and ex-employees, always try to keep learning. To improve your analytical edge you can read books about investing, like the intelligent investor, and also read annual letters from other investors, like Warren Buffett, Bill Ackman, Mohnish Pabrai, etc.

• Edge as a small investor

  One edge you have as a small investor is that you can have long term approach, you can be patient and wait for the right opportunity. Unlike institutional investors, you don't face the pressure of delivering quarterly performance to retain your position. Another key advantage is your flexibility to invest in smaller companies that often fly under the radar of large institutions, allowing you to capitalize on overlooked opportunities.

• Graham, Intelligent investor, Chapter 8. "The Market is there to serve us, not to instruct us". Momentum investors believe market is instructing us, that's wrong. Market just tells us prices, gives us opportunities. Value vs Price. Market is a voting machine in the short term and a weighing machine in the long term. We need to be patient and disciplined. Focus on businesses and don't let the price of the stock influence your judgement.
• The market is forward-looking, with investing focused on future prospects rather than past performance. Stock movements often precede the release of news, typically peaking when the most optimistic expectations are already factored in and bottoming out when the worst is anticipated. While the market tends to be accurate over the long term, it can be inefficient in the short term due to the influence of emotions, herd mentality, and the short-term focus of money managers.

• In investing we are buying a business, and we are looking for a good business that will generate cash flow in the future. Value investing, the strategy to investing in companies trading at an appreciable discount from underlying value, has a proven record of delivering excellent investment results with limited downside risk. We buy stocks to participate in the success of the underlying company. According to Munger all investing is value investing. It's important to recognize that the value of a business has nothing to do with the past, its all about generation future cash flow. Most investment formulas project the recent past into the future and none have been proven to work. "Most value investors weight past data very heavily. As I tell our analysts, 100 percent of the information you have about any business reflects the past, and 100 percent of the value of that business depends on the future. So, it is only to the extent that the future resembles the past, or maps onto it in some kind of systematic way, that historical data are useful for assessing value". - Bill Miller
• "Speculators buy and sell securities based on whether they believe those securities will next rise or fall in price. Speculation involves going along with the crowd, not against it. Speculators do not realise they are playing the greater fools game, buying over valued securities and hoping to find someone, a greater fool, to buy them at an even higher price. Speculators are obsessed with predicting, guessing, the direction of stock prices. They attempt to predict the market direction by using technical analysis, past stock price fluctuations, as a guide. Successful investors understand that a stock price rises does not ensure that the underlying business is doing well or that the price increase is justified by a corresponding increase in underlying value". - Seth Klarman. If the prevailing stock price is not warranted by underlying value, it will eventually fall.

Avoiding Common Pitfalls:

Core Principles:

• Our approach is to always follow the “Buffett” core principles, since it has proven to work. Even famous investors like Bill Ackman have learned the hard way, and reverted to these basics after learning through experience. The greatest challenge for investors is to maintain the required discipline.
• We don't screen for companies based solely on financials, instead we seek companies with strong moats in growing sectors. We focus on future potential of the business. Sometimes things shout out to us and then we look closer. We need to have an idea what the company will look like in 5-10 years, so we need to understand growth potential, competitive advantage and the reason behind it. Continuous learning expands our circle of competence, enabling us to identify more opportunities.

• Step 1 - Company Belief

  Belief in a company's vision and unique solution is paramount, much more important than its metrics, that is secondary. We look for companies with significant growth potential in emerging sectors, such as Google (digital marketing) in 2004, Amazon (cloud computing) in 2008, Nvidia (AI) 2023 etc. As Seth Klarman and Buffett have noted, "The financial markets are far too complex to be incorporated into a formula".

• Step 2 - In-Depth Understanding

  Understanding the company's MOAT and business model is crucial. Avoid companies with questionable moats, like Beyond Meat and Celcius. While we evaluate financials, they are not our primary focus. We triangulate information from various sources, including books and experts, and listen to investors like Brian Feroldi. Understand risk/downside to be able to evaluate likehood of different outcomes. If you do not understand company future, i.e if it not clear that the company will continue to grow (strong moat), like newspapers affected by online or Google affected by LLM, then its to hard, so stay away and instead invest in something more simple. By only investing in quality companies with strong moats, we can avoid the risk of losing money if economy goes bad, since great companies usually get stronger in a downturn, since they can buyback stocks, buy competitors and take market share. Also it's important that the company have a good managment that focus on the long term and can take advantages of new trends.

• Step 3 - Margin of Safety

  We seek companies trading at a discount to their intrinsic values. It's beneficial if price is temporary down due to event. Or if we have superior knowledge about the company, for instance, when chatGPT was release and each instance was running on eight GPUs and all cloud providers started to ramp up Nvidia GPU's. Despite this, the market didn't react immediately, presenting an obvious investment opportunity. The cheapest security in an overvalued market may still be overvalued.

• How do you calculate margin of safety?

• The intrinsic value of a business is the present value of its future cash flows, discounted back to today. A Reverse Discounted Cash Flow (RDCF) analysis helps determine the implied growth rate—the market's expectations for future cash flows embedded in the current stock price.

• To assess whether a stock is undervalued or overvalued, we need to evaluate whether the company can realistically grow faster or slower than the implied rate. We calculate the growth rate required to justify both the current stock price and the margin of safety price.

• Your task is to estimate a reasonable future growth rate and compare it to these calculated values. Analyst estimates can serve as a useful starting point for this assessment.

• When running a Reverse Discounted Cash Flow (RDCF), we get the implied growth rate or the market's expectations of future cash flows baked into the current stock price. Instead of estimating the intrinsic value of a stock based on future assumptions (as in a regular DCF), an RDCF works in reverse.

• Important Characteristics:

  We target companies with strong ROIC and reinvestment opportunities in growing sectors like AI, cybersecurity, and cloud computing. To continue growing, with high return on invested capital and maintaining market share in expanding markets, a strong moat and effective management are vital. Companies with high ROIC attract a lot of competition. Buffett emphasizes ROIC as a measure of a company's efficiency in allocating capital to profitable investments. He prefers companies that require minimal capital reinvestment to grow. Ideally, we target businesses that are light on capital intensity yet capable of significant growth. These companies typically boast high margins and scalable digital business models, exemplified by industry giants like Apple and Google.

  Valuation is important but over time a non growing company will not generate more return than its ROIC. So if you can find companies with high ROIC that is also growing and reinvesting its earnings at high ROIC, it will generate a lot of wealth for you. Strong moat is required to keep the competition at bay.

• For a company to be able to generate long term value a moat is essential. Companies need to develop and maintain a competitive edge to thrive and fend off rivals. This could involve:

  • Network effects: Companies like Facebook and Google benefit from network effects, where the value of their services increases as more users join the platform.
  • Brand: Strong brands like Apple and Coca-Cola can command premium prices and customer loyalty.
  • Switching costs: Companies like Microsoft and Adobe have high switching costs, making it difficult for customers to switch to competitors.
  • Cost advantages: Companies like Amazon and Walmart have cost advantages that allow them to offer lower prices than competitors.
  • Regulatory protection: Companies like Visa and Mastercard benefit from regulatory protection and high barriers to entry.
  • Proprietary Technology: Unique innovations that competitors cannot easily replicate.
  • Economies of Scale: Cost advantages gained when a company can spread its fixed costs over a large volume of production, making it difficult for smaller competitors to match their pricing.
  • Irreplaceable physical assets: Businesses like railroads and airports have physical infrastructure that is difficult to replicate.

• Terry Smith avoids entire sectors that he believes fundamentally lack strong moats—such as banks, manufacturers, airlines, transportation, and mining. While companies in these industries might do well during certain parts of the cycle, they typically struggle to generate sustained value (return on capital over time). For instance, the car industry is highly capital-intensive, cyclical, and offers limited opportunities for durable competitive advantages.

• A durable moat is critical to a company's long-term success, serving as the primary driver of sustained value creation. Growth alone is insufficient; a company must have a robust moat to protect its profit margins. Such companies are rare and possess significant pricing power. According to investor Chris Horn, a durable moat is the most important factor in his investment decisions. He prioritizes companies with strong, defensible moats and avoids those without. For instance, he steers clear of airline businesses, despite their potential for growth, due to their weak moats. In contrast, he views airports—particularly those with unregulated segments—as attractive investments because of their durable moats. Horn also favors big tech companies and stock exchanges but avoids sectors where moats are uncertain. He completely avoids industries such as banks, insurance, commodities, automotive, retail, manufacturing, tobacco, advertising agencies, and telecommunications due to their lack of sustainable competitive advantages.

• "Competition is for losers" - Peter Thiel

• Optionality

  Optionality refers to a company's ability to expand into new business areas in the future. This is a critical soft factor because companies that can successfully diversify into new markets or product lines can sustain high growth rates and reduce the risk of overdependence on a single revenue stream. Amazon started as a book retailer but expanded into e-commerce, cloud computing, and streaming, continuously finding new high-ROIC opportunities. Tesla started with electric vehicles but has expanded into energy storage, solar power, and autonomous driving. This optionality gives companies multiple paths to growth.

• Long term mindset

  Seeking out companies with a long-term mindset is crucial. Nick Sleep described long-term orientation and the pursuit of "deferred gratification" as a superpower exemplified by companies like Amazon. Such firms willingly accept short-term challenges and commit to substantial capital expenditures to drive significant long-term profitability. Achieving this demands a robust corporate culture and a board committed to a forward-looking, patient strategy. Companies without strong board and management risk being overtaken by activist investors looking for short term gain.

• Good management

  Effective management is crucial for navigating and capitalizing on emerging trends, such as AI. We look for leaders who are adept at capital allocation, demonstrate honesty, and can adapt their business models to leverage new opportunities. Strong management teams drive innovation and ensure sustainable growth.

• Avoiding "Value Traps":

  We steer clear of seemingly cheap but fundamentally weak companies (low price is not top priority). A low price is not our top priority. We prioritize quality over price to ensure long-term value.

• Country and Sector Analysis

  Identifying favorable macroeconomic environments and sectors with growth potential. Then assessing if a country is conducive to investments, mirroring models like the U.S's market-driven economy with minimal state intervention in terms of ownership and control, promoting competition and innovation.

Gleaning insights from reputable funds and investment forums. Keep updated on the latest trends, company/marketing events and technologies. Keep learning by reading books. Monitoring market sentiments and herd mentality for better decision-making. "Opportunity comes to the prepared mind." - Charlie Munger

• Tech funds: https://io-fund.com/blogs , https://twitter.com/futurefund , Swedbank Robur Technology
• Great value funds: Twillinghast fund, Fred Martin: https://www.dgifund.com/what-you-will-own/holdings
• Norges Bank Investment, Nicolai Tangen: https://www.nbim.no/en/the-fund/investments/#/2024/investments/equities
• Forums: Seeking alpha , The Motley Fool
• "Reverse engineer" super investors: Dataroma
• Value investor club: https://valueinvestorsclub.com/ideas

• Cloning

  Learn from the best investors and stock pickers on X — but always make sure you fully understand the investment case before committing. Conviction comes from understanding.

• Investment Clock

  Economic cycle: Keep an eye on the investment clock and keep in mind that the stock market always act very early. For example load up on growth stock as soon as you see a sign of inflation is about to top. When interest rates are expected to rise, growth stocks tend to plummet. This decline occurs because future earnings are discounted more heavily, making these stocks less attractive. Additionally, the psychological impact of rising interest rates makes growth stocks, which are inherently harder to value, less appealing to investors. Conversely, when indications suggest that interest rates will decrease, growth stocks typically experience a boost in value.

• Shiller PE Ratio

  The Shiller PE ratio (CAPE) compares the market price of stocks to their inflation-adjusted earnings over 10 years, helping investors gauge whether the market is overvalued or undervalued. It's a valuable tool for disciplined, long-term decision-making.

• A low Shiller PE signals undervalued markets—perfect for finding bargains. These are the moments to act boldly, as downturns often present the best opportunities.

• A high Shiller PE indicates overvalued markets, suggesting caution. These are the times to hold cash or be more selective, as market corrections may be imminent. Unlike major funds, you can move in and out of positions nimbly, avoiding bubbles and taking advantage of opportunities.

• As Charlie Munger says, "You make money when you wait." Stay patient, stay disciplined, and use market cycles to your advantage.

• Limitations

  Does not account for macroeconomic changes, such as interest rates. Relies on historical data, which may not predict future performance.

• Buffett Indicator

  The Buffett Indicator compares the total market capitalization of all stocks listed on a stock exchange to the country's GDP. It helps investors gauge whether the market is overvalued or undervalued.

• Useful for assessing the entire stock market's valuation in relation to economic productivity.

• Limitations

  GDP grows slowly compared to market cap, particularly in technology-driven economies. Ignores global influences (e.g., multinational companies' revenues may not depend on domestic GDP).

• Inflation

  Inflation erodes purchasing power, making it essential to invest in companies that can withstand inflationary pressures. Companies with pricing power can pass increased costs onto consumers, maintaining their profit margins. Additionally, inflation can influence interest rates, which in turn affect stock prices. Typically, when inflation rises, interest rates follow, leading to a decline in stock prices. To protect against inflation, it is wise to invest in companies with strong competitive advantages (moats) and pricing power. Companies with low capital requirements are also less sensitive to inflation, as their capital investment needs do not significantly increase with rising inflation.

• Interest Rates

  Interest rates significantly impact stock prices. When interest rates rise, stock prices tend to fall because future earnings are discounted more heavily. Conversely, when interest rates decrease, stock prices typically rise. Understanding the relationship between interest rates and stock prices is crucial for making informed investment decisions. As the market is forward-looking, it often reacts before interest rates actually change.

• Don't fight the Fed.

  The Federal Reserve (Fed) plays a crucial role in managing the economy, including influencing interest rates. As an investor, it's important to understand and anticipate the Fed's actions, as they can significantly impact stock prices. For instance, when the Fed raises interest rates, it can lead to a decline in stock prices, particularly for growth stocks. Conversely, when the Fed lowers interest rates, it can stimulate stock prices, benefiting growth stocks.

• For more extensive information, checkout "Macro economic factors" page.

• Two Types of Economic Cycles

  Understanding the difference between short-term and long-term cycles:

  Framework	Typical Duration	What it Captures
  Investment Clock	~5–10 years	The short-term business cycle — shifts between growth, inflation, tightening, and recession that drive asset rotations (stocks → bonds → commodities → cash).
  Ray Dalio's Economic Machine (Debt Cycle)	~50–100 years	The long-term debt supercycle — buildup and unwinding of debt, credit expansion, and monetary policy responses over multiple business cycles.

• Ray Dalio's Economic Machine (Debt Cycle)

  Summary of the long-term debt cycle based on Dalio's economic cycle analysis:

  Step	Dependency (Cause → Effect)	Explanation (Dalio's Mechanism)
  1. Massive debt → Government prints money	When debt levels become too high, borrowers can't repay, and central banks must step in.	Debt burdens grow faster than income. To avoid defaults and collapse, governments and central banks print money to finance deficits and service debt.
  2. Printing money → Currency depreciates	Increasing money supply reduces the currency's value relative to goods and other currencies.	As more money chases the same output, inflation rises and confidence in the currency declines, leading to devaluation.
  3. Currency depreciation → Local self-reliance increases	As currency weakens, import prices rise, fueling domestic inflation.	A weaker currency imports inflation, and people start shifting from cash to real goods, accelerating price increases and increasing local production focus.
  4. Currency depreciation → Central banks buy gold instead of bonds	Other central banks lose trust in the depreciating currency.	As confidence in the currency declines, central banksdiversify reserves by buying gold instead of government bonds, reducing demand for the currency.
  5. Gold buying → Dollar demand falls, risk perception rises	Reduced central bank bond purchases decrease currency demand.	The currency becomes riskier with lower demand, creating a self-reinforcing cycle of declining confidence and further depreciation.
  6. Dollar risk → Interest rates and inflation rise	Government must offer higher interest rates to attract lenders. Weaker currency raises import prices.	To control inflation and restore faith in money, central banks raise interest rates, while weaker currency feeds inflation through higher import costs.
  7. Higher rates/inflation → Bond prices drop	Higher discount rates reduce present values of future cash flows, especially for growth stocks.	Bond prices drop as yields rise; leveraged assets deflate, and growth stocks drop as future earnings are discounted more heavily.
  8. Economic slowdown → Central banks print again → Cycle restarts	Falling asset values hurt wealth, spending, and borrowing capacity, forcing deleveraging.	Lower wealth reduces demand → lower income → debt burdens worsen, forcing defaults or restructurings. To cushion the pain, policymakers eventually ease again. After deleveraging completes and debt-to-income ratios normalize, a new long-term debt cycle can begin.

  US debt to GDP: https://fred.stlouisfed.org/series/GFDEGDQ188S

  Buffett: Debt is concerning but manageable as long as growth, innovation, and productivity expand faster than obligations.

  Dalio believes debt cycles and human behavior repeat predictably — and the U.S. is nearing the painful phase.

  The Investment Clock (Short-Term Economic Cycle)

  Summary of the chain — The Investment Clock cycle:

  Step	Dependency (Cause → Effect)	Economic Description	Typical Winning Assets	Typical Losing Assets
  1. Early Recovery	Recession ends → policy easing → liquidity increases	Central banks cut rates and/or print money; credit becomes cheaper; growth restarts from low base.	Equities (especially cyclical and small caps), real estate, credit.	Cash, defensive stocks.
  2. Expansion	Easier credit → rising demand → growth accelerates	Companies hire, profits rise, consumers spend more. Inflation remains moderate.	Equities, real estate, corporate bonds.	Cash, long-term government bonds.
  3. Late Expansion	Economy overheats → capacity tightens → inflation builds	Labor and resource shortages push wages and prices up. Central banks start raising rates.	Commodities, inflation-linked assets, value stocks, energy/materials.	Long-duration bonds, high-growth equities.
  4. Inflation Peak / Stagflation	Prices rise faster than growth → profit margins squeezed	Inflation erodes real returns; growth slows; confidence weakens.	Gold, commodities, real assets.	Equities (especially growth), nominal bonds.
  5. Contraction (Tightening → Slowdown)	High rates → credit shrinks → spending declines	Borrowing costs rise; companies cut back; unemployment increases.	Cash, defensive sectors (utilities, healthcare).	Cyclical equities, commodities.
  6. Recession	Aggregate demand falls → output and profits drop	GDP contracts; deflation or disinflation pressures; central banks prepare to cut again.	Government bonds (yields fall), high-quality fixed income.	Risk assets: equities, high yield bonds.
  7. Policy Easing → Recovery restarts	Central banks cut rates → liquidity returns	Lower rates and fiscal support restore credit flow; the cycle restarts at Step 1.	Bonds (early), then equities as growth returns.	Cash, commodities (until inflation rises again).

  Relationship Between the Cycles

  Think of it like gears turning inside a larger gear:

  • Each Investment Clock rotation is a short-term credit cycle (a few years).
  • Over time, successive cycles cause debt to accumulate, because policymakers smooth recessions with easier money each time.
  • Eventually, the long-term debt burden becomes unsustainable — and that's when Dalio's long-term cycle reaches its endgame (printing, inflation, deleveraging).

• Change is the only constant

  The only thing we can be sure about is that it will always be changes and unpredictable events, like COVID-19 or wars, so it's essential to invest in great companies. Price and emotions influence the herd mentality, and price fluctuations impact sentiment. Gauge the herd's perception through platforms like Twitter, noting any misunderstandings. Even great companies may see their stock prices drop during market downturns, as investors sell to cover margin calls or switch to other stocks that have fallen more significantly due to opportunity costs.

• Macroeconomic trends

  Stay alert to long term macroeconomic trends and geopolitical events that influence stock prices in specific regions/countries. Understanding these long term trends helps make informed investment decisions and avoid unnecessary risks. For instance, manufacturing is shifting from China to India, Vietnam, and Thailand, presenting new investment opportunities. China's transition from low-cost manufacturing to a consumer-driven economy also impacts markets. US-China tensions can further influence stock prices. Government interventions in China have affected companies like Alibaba and Tencent, deterring some investors, while China leads in 5G and EV infrastructure investments. Other key trends include technological innovations and renewable energy. Primarily use these trends to find growth opportunities.

• Story has changed, or if better opportunities emerge, or the company is highly overvalued. When company is highly overvalued, sell a little bit at a time. If you cannot find anything to buy, stay in cash or other assets classes such as bonds or special situations. Remember you should always looks for the best risk/reward opportunity, so sometimes you need to look in other sectors or even other assets classes. Since a stock can go up/down 80% in a year, and intrinsic value usually not that much, holding next five year can give not a good enough return (IRR).

• When a company is highly overvalued, it may continue to perform well in the short term due to market hype. This momentum can be leveraged using technical tools like the 200-day moving average (200 MA). However, it's crucial to remain aware of the overvaluation and recognize that the risk/reward ratio is unfavorable. Although Buffett wouldn't stay in highly overvalued stocks, his approach is conservative/defensive. Investors often get carried away during periods of excessive optimism, such as the tech bubble of 2000. While many predictions about technological advancements were accurate, valuations were unsustainably high.

• For companies that are only slightly overvalued, it's important to take a long-term perspective. Avoiding unnecessary disruption to the compounding process can often outweigh the short-term benefits of trying to time the market. Long-term thinking is key to maximizing returns and building wealth sustainably. "There is a risk of selling companies with unusual growth prospects simply because they have realized a good gain and is temporarily overpriced, since by selling is not certain that you can buy them back at lower price." - Philip Fisher. Hard to play the in and out game.

• Should I sell if I believe the company will struggle temporary but long term will be great. Usually hard to time the market.

• But what about a macro shift in the economy, like inflation starting to rise? Still hard to time the market, maybe trim your positions. If you are a small investor and live in a country with low tax on capital gains like ISK in Sweden, then you can sell and buy back later.

• Philip Fisher believes as long as the long term is attractive, you should not sell, even if you think stock is on a short term peak.

• However, this approach depends on your investment strategy. If you follow a defensive strategy, you should consider selling when a stock reaches its intrinsic value. Seth Klarman applied this approach with his defensive fund, Baupost.

• Continuous Evaluation

  For companies you own, most important listen to quarter reports via Quarter app. Also check what other great investors thinks about quarterly reports, like Brian Feroldi/Stoffel Youtube channel and forums like Motley Fool and Seeking Alpha. Based on this information evaluate thesis, moat and management. Update Bull/Bear case with new info. Always focus on the long term. If you have a good company, then you should not be afraid of the short term price movements. If the company is good, then the price will follow the company earnings in the long run. Evaluate if theses are still valid, are there a new competitor, something new disruptive?

• Since we want to find companies that can grow at a high rate, with low risk, we are looking for management that are in it for the long run. We look for companies that widen their moat by re-investing wisely to strengthen their business long term. We don't want management that want to please investors short term, instead of investing for the long term in new processes, product lines etc. We want a management team that are good at adapting to changes and new trends that also are skilled when it comes to capital allocation. Also we want management that are honest and have high integrity. Its important that the management team build up a good culture within the company, since then employees will be more productive and loyal.

• In summary, we look for management that:

  • Is committed to long-term growth and success.
  • Reinvests wisely to strengthen the company's competitive advantage.
  • Adapts well to changes and new trends.
  • Is skilled in capital allocation.
  • Upholds high standards of honesty and integrity.
  • Builds a positive company culture that fosters productivity and loyalty.

• The margin of safety is the difference between the price you pay for a stock and its intrinsic value. It is a crucial concept in value investing, as it provides a buffer against potential errors in valuation.

• Circle of Competence

  The circle of competence is the area where you have the most knowledge and expertise. It is very important to stay within your circle of competence to avoid making mistakes. If the stock goes down, without understanding the company, you do not know if you should sell or buy more. Then you act as a speculator, not an investor.

• With a broad circle of competence, you can invest in many different companies/asset classes, and better taking advantage of mispricing. Also you can diversify your portfolio, and reduce risk. Ray Dalio from Bridgewater Associates, one of the largest hedge funds in the world, has a very broad circle of competence and invests in many different asset classes that are uncorrelated to reduce risk.

  With a broad circle of competence, you can invest in many different companies/asset classes, and better taking advantage of mispricing. Also you can diversify your portfolio, and reduce risk. Ray Dalio from Bridgewater Associates, one of the largest hedge funds in the world, has a very broad circle of competence and invests in many different asset classes that are uncorrelated to reduce risk.

  I don’t play in a game where the other people are wise and I’m stupid. I look for a place where I’m wise and they’re stupid - Charlie Munger

  Stay in the games where I understand and I don't feel bad at all of missing out on games like Bitcoin - Joel Greenblatt

  After reading all this you’re going to know more about this industry than most analysts. You’ll be an inch wide and a mile deep. That’s where you want to be. - Phil Town

• According to Phil Town, to truly understand and value a company within your circle of competence, research it as if you were thinking like an entrepreneur or business owner—as if you were buying or starting the entire business yourself.

  He often illustrates this with a restaurant example (or any simple business from your 3 Circles): You wouldn't just skim a review or one quarterly report before committing your money and time. Instead, go deep by:

  • Reading books on how to start and run that type of business (e.g., restaurant or franchise guides) to grasp operations, costs, customers, supply chain, and labor.
  • Understanding the underlying economics: How does it make money? What drives revenue (foot traffic, margins, repeat business)? Fixed vs. variable costs? Performance in good times vs. recessions?
  • Studying competitors (including their filings) to reveal the moat—why customers choose one over another.
  • Thoroughly reading primary documents like the 10-K (annual report) and 10-Qs, which detail financials, risks, strategy, and management discussion (signed under penalty of law).
  • Adding real-world layers: earnings calls, industry reports, customer perspectives, and direct observation (e.g., eating there or talking to staff).

  The goal is to know the business so well you could almost run it or spot opportunities/problems like an owner. This depth, tied to the “inch wide and a mile deep” mantra, builds confidence to identify “wonderful” companies and buy with a margin of safety. Superficial research is speculating; owner-like study is true investing.

• The mistake I'd say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch that basket very carefully. - Stanley Druckenmiller

• Don't take risk, wait until opportunity is obvious. - Bryan Lawrence

• If there's one thing I've learned from him (George Soros), it's that when you're right, and you know something, you really feel it, you can't have enough. - Stan Druckenmiller

• Don't blow your opportunities. You don't get that many great opportunities in a lifetime. They're not that common, the ones that are clearly recognizable with virtually no downside and big upsides. Don't be too timid, when you really have a cinch. - Charlie Munger

• Size according to risk/reward. If the downside risk approaches 100%, position size should be strictly limited, even if the potential upside is very large.The Kelly criterion can be used as a guide to determine optimal position sizing based on probability-adjusted risk and reward. Size big when the downside is limited and you have an edge. Size small when the downside is catastrophic, even if upside looks huge.

• Risk

  What is risk? Value investors defines risk differently than traditional investors. Instead of viewing risk as volatility (as measured by standard deviation in Modern Portfolio Theory), value investors sees risk as the probability of permanent loss of capital. This is why they are more focused on the downside risk than the upside potential. Buffett’s approach to risk suggests that investors should focus on understanding businesses deeply, buying them at a discount (margin of safety), and ignoring short-term market fluctuations. A broader circle of competence can reduce risk since you have more options to choose from. Default state should be staying in cash until you find a good enough opportunity.

• The real risk in an investment is whether you will sustain a permanent loss of capital, not whether its price is volatile. - Warren Buffett

• I would rather have a lumpy 15% return than a smooth 12% return. - Warren Buffett

• Risk comes from not knowing what you’re doing. - Warren Buffett

• Leverage

  If you use leverage you risk getting margin calls and being forced to sell at the worst time. Crises like war, terrorist attacks etc. will always come, just a matter of when, so many prominent investors do not use leverage to survive in the long run. Seth Klarman defensive fund, do never use any leverage. On the other hand:

• "if you can borrow at negative interest rate, and buy productive assets, you should do that." - Bill Miller

• So leverage not more than 20% of your portfolio, and only when overall market is down, valuations (avarage P/E are low for specific sector) and inflation is not increasing. Then decrease leverage when market valuation is getting higher or inflation is increasing.

• Downside/Risk factors

  Farsighted investors manage their portfolios with the knowledge that financial catastrophes can and will occur. Avoiding loss should be the primary goal of every investor. The economic cycle and global crises makes the stock market to tumble regulary. (Also businesses specific crises can make a stock go down 50% temporary). Therefore, it's crucial to invest in companies that can withstand long-term challenges, possess pricing power, have a competitive moat and buy these companies with some margin of safety. Such companies can navigate inflation and economic downturns and sometimes emerge even stronger as competitors go bankrupt, allowing them to increase their market share. Investing in quality companies with strong moats and trustworthy management lowers risk. Poor management, on the other hand, can drive a company into Chapter 11 bankruptcy to shed debt and restart, often causing shareholders to lose their entire investment. Thus, it's vital to invest in companies with low debt relative to cash flow and where management has significant insider ownership.

• Investing is the process of laying out money now to receive more money in the future. Valuation is to estimate the future cash flow of a company, and discount it back to today. There are different strategies to find companies with a price that is lower than its value.

• Never, ever invest in the present. It doesn't matter what a company's earning, what they have earned... you have to visualize the situation 18 months from now, and whatever that is, that's where the price will be. - Stan Druckenmiller

• What a company earns right now, doesn't mean anything. What you have to look at is what a company is earning and what people think it's going to earn and if you can see something that in two years is going to be entirelly different than the conventional wisdom, that's how you make money. - Stan Druckenmiller

• As I tell our analysts, 100 % of the information you have about any business reflects the past, and 100 % of the value of that business depends on the future. - Bill Miller

• While quantitative factors like ROIC and earnings growth are important, qualitative factors such as the moat, management, and overall vision or "feeling" about the company's future prospects are critical. Many successful long-term investments are driven by a company's ability to adapt, innovate, and maintain a competitive edge, which is often captured by these softer, forward-looking factors.

• Hard factors like ROIC, earnings growth, and profit margins are critical for understanding where a company stands today, but soft factors (moat, management, innovation, and strategic vision) help you gauge where it is headed tomorrow.

• Depending on your temperament and risk tolerance, you can choose to focus on a more defensive strategy, like Buffett's, which may cause you to miss out on some gain when market is hyped, or take a more offensive approach that can lead to larger short-term declines. Regardless of the path you choose, it is essential to stay anchored to the core principles outlined on this page — maintaining a long term perspective, investing in high quality companies with strong moats, and more.

• Key Factors in Value Investing Styles

  The table below compares different investors and their approaches to value investing, including their focus on company optionality (hidden or emerging opportunities like AWS for Amazon, iPhone for Apple, YouTube for Google, Azure for Microsoft, etc.):

  Investor	CAGR (%)	Years	Valuation Focus	Moat Focus	Risk Focus	Management Focus	Company Optionality Focus
  Warren Buffett (Partnerships)	29.5	1957–1966	Net-nets & work-outs	Moderate	Permanent loss	Moderate	Low
  Warren Buffett (Berkshire)	19.8	1965–2023	DCF + margin of safety	Very High	Margin of safety + cash	Essential	Medium → loves it when it appears (Apple ecosystem, BNSF rail optionality) but rarely pays up for unproven optionality
  Joel Greenblatt (Gotham Capital)	40	1985–1994	Deep discount to asset value / special situations (spinoffs, mergers, bankruptcies, restructurings)	Low	Concentrated (10–12 holdings) + event certainty	Low	Very High – specialized in spinoffs (trading at 3x earnings), merger arbitrage (40% spreads), bankruptcy turnarounds, and corporate restructurings
  David Gardner	22	20	Ignores valuation if growth story strong	Very High	Long-term holds	Very High	Extremely High – literally hunts for "the next AWS" in every pick (Rule #1: "Let your winners run")
  Bill Ackman	16.5	2004→	Discount to sum-of-parts / catalyst	High	Concentrated + hedges	Very High	Very High – Canadian Pacific → real-estate optionality, Chipotle turnaround, Universal Music, etc.
  Seth Klarman	~15–20	1983→	Huge discount to conservative value	Moderate	Massive cash for crises	Moderate	Low
  Howard Marks	~15	1990→	Risk premium in distressed	Moderate	Cycle timing	Low	Low
  Peter Lynch	29.2	1977–1990	GARP / PEG	Moderate	1,400 stocks	High	Very High – famous for finding "the next big product" inside boring companies (e.g., Taco Bell inside PepsiCo)
  Charlie Munger	19.8	1962–1975	Quality at fair price	Very High	Avoid stupidity	Essential	Medium
  Ray Dalio	~12	1975–2023	Macro & risk premia	Low	Risk parity	Low	Low
  Stanley Druckenmiller	30.0	1981–2010	Macro themes	Moderate	Asymmetric sizing	High	Very High – bought Nvidia early for AI optionality, Meta when platforms were cheap, etc.
  Mohnish Pabrai	~18	1999→	50-cent dollars	High	Concentrated + checklists	High	Medium → likes it but buys only when already very cheap
  Guy Spier	~11	1997→	Classic Buffett + ethics	High	Circle of competence	High	Medium
  Bill Miller	~14.7	1982–2005	Contrarian value	Moderate	Concentrated	High	Very High – owned Amazon in 1990s, AOL, Dell when no one saw the optionality
  @NemCapSE (Christian)	55 → ~15–20	2003→	Nanocap deep value	Moderate	Downside first	High	Very High – explicitly targets Swedish "hidden AWS" hunter in sub-1B SEK companies

• A, Edge-Based Investing

  Many investors focus on valuating companies, but it's crucial to have a unique perspective and leverage your edge. If you don't have an edge, the market has likely already priced in the available information. When you gain a strong insight—such as identifying undervalued technologies or trends before they reach market consensus, or spotting a company with a strong moat and massive TAM (Total Addressable Market)—you often don't even need detailed valuation metrics. These are typically the best opportunities for long-term growth, like Google or Amazon in their early days.

• The key is to invest in companies with a bright future, purchasing them at a significant discount based on what you believe they WILL be worth in the FUTURE, rather than their current value. Applying first-principles thinking to assess a company's vision and ensuring the CEO has the drive to execute is essential. There will always be dissenting opinions, but those insights are often where the best opportunities lie.

• You can valuate these companies via qualitative factors like understanding disruptive trends, management, or competitive advantages that don't yet appear in the financials, i.e not yet visible in the cash flows. So the most important factor is your future belief in the company. Reversed DCF and forecast future growth rate combined withTAM/SAM Analysiscan sometimes help to get a rough estimate of future cashflows.

• This strategy often relies on qualitative factors like understanding disruptive trends, management, or competitive advantages that don't yet appear in the financials.

• Focus on sectors primed for transformational growth, like robotics, clean energy, and AI, where massive disruption and exponential growth is likely. Traditional experts often project past trends forward, missing radical shifts. Instead, prioritize entrepreneurs with first-principles thinking who deconstruct problems fundamentally and innovate from scratch, as these are the minds driving breakthrough change. Look to examples like Amazon, Google, and Tesla—companies that redefined industries by challenging conventional thinking and building from the ground up. Assess if these companies are establishing enduring moats, like Apple's ecosystem or Amazon's fulfillment network, to sustain competitive advantage. Seek these visionary leaders who are set to shape the future. To assess whether their vision is realistic, apply first-principles thinking yourself and ignore the naysayers, focusing on potential long-term impact. Position size is important, based on risk/reward ratio.

• You have to be patient and wait for the right opportunity, and then act fast and take a big position. Your mind need to be prepared, since it's psychological hard to go against the herd. In a world where most follow the herd, success belongs to those who dare to lead.

• Really good investment opportunities aren’t going to come along too often and won’t last too long, so you’ve got to be ready to act and have a prepared mind. - Charlie Munger

• In my experience, the best investment insights often feel more like gifts of serendipity than products of mechanical rigor. - Nima Shayegh

• Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and the big ideas will appear. - Charlie Munger

• Pick up on something Wall Street is not aware of yet. You can beat hedge funds, since they have no incentive to beat the market, and jump on new things. They make money from people investing in their fund, so they just need to make sure they do not underperform the market.

• The larger the anticipated disruption, the greater the opportunity for outsized returns.

• Investors: Bill Miller, Stanley Druckenmiller, Peter Thiel, Warren Buffett, Mohnish Pabrai, John Templeton, Joel Tillinghast, Bryan Lawrence

• B, Event-Based Investing

  Sometimes there are one time events that makes the price go down, like a company that has a lawsuit, or like when Chipotle had a food scare. If you have a good understanding of the company, and you think the event is temporary, then its a good time to buy since price is temporary down. Based on emotions, the herd will think the company is bad, but if you have a good understanding regarding moat, management etc, then you can buy. Its important to distinguish between mistake and opportunity, thats when you make the big money. Understand short sellers arguments, identify why they are wrong. Undertand why the market is wrong. Another type of event are market wide declines due to macro events combined with fear, like pandemics, recessions, or geopolitical tensions, then you can buy many great companies at a discount.

• Succeding in this strategy often requires being contrarian and going against the herd. It's critical to distinguish temporary issues from permanent ones - value traps.

• Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it's imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do. - Warren Buffett

• The riskiest time to invest is when the market looks safest, and the safest time to invest is when the market looks riskiest.

• Investors: Phil Town, Warren Buffett, Bill Ackman, Bryan Lawrence, Howard Marks, Seth Klarman, Howard Marks.

• C, Buy and hold quality companies

  Buy and hold is a strategy that involves buying a business and holding it for a long time. This strategy is based on the belief that the stock will go up in the long term. The key is to buy a great companies at a reasonable price with a strong moat and good management, that are strong on capital allocation. While valutaion is important, companies with high ROIC that are growing and reinvesting its earnings at high ROIC will generate a lot of wealth for you over time. The hunt for these great gems has generated a lot of wealth historically.

  When running Reversed DCF, we usually assume that company growth will slow down over time, but quality companies like Apple, Google and Microsoft have managed to grow their earnings at a high rate over time, so with a long term horizon, these companies have been able to generate a lot of wealth for their shareholders.

• D, Small cap stock picking - valuation-based

  Valuation-based investing focuses on identifying companies that are undervalued, and have some near term trigger such as increased earnings. This approach doesn't rely on predicting emerging technology trends ahead of the market but instead capitalizes on the low valuation and price drivers.

• Key Strategies for Success:

  • Focus on smaller companies that lack analyst coverage.
  • Success comes from analyzing how companies, particularly small ones, might look 6–18 months ahead—ideally much better than today.
  • Be contrarian, and act early before consensus recognizes the changes.
  • Position sizing is crucial—taking big bets with conviction when you understand both intrinsic value and what shifts market perception.
  • Analyze companies and wait patiently for the right price to ensure a margin of safety.
  • Acting early, before consensus recognizes these changes, is often where the best risk/reward lies. The best opportunities often feel uncomfortable—when a company's potential isn't yet obvious, the likelihood of undervaluation is highest.
  • Insider buys are a good signal that the company is undervalued, and the insider knows something that the market doesn't.
  • Look for entreneurs led companies with organic growth in strong sectors.
  • Need to understand business model to be able to analyse peak margin and terminal P/E.
  • Understand price drivers, for example:
  • Increase in earnings according to analyst consensus
  • Improved margins: Find companies that are far from reaching their potential in terms of growth rate and margins. What is a reasonable long-term profitability level for the company? Sometimes, financial targets are communicated by the company. Check what margins peers have. Look for companies with a high spread between gross margin and profit margin, for example, a 70 percent gross margin and a scalable business model, which could potentially achieve a 30 percent profit margin. If the current profit margin is 7 percent, it presents an excellent investment opportunity.
  • New product launch or shift in strategy.
  • Reduce marketing expenses while achieving revenue growth.
  • Improve growth, profitability, leadership changes, or the sale of an underperforming division.

• To succeed in this category you need to be strong in Quantitative analysis. Start with topline (overall market segment, company moat etc) and then track orders, reports, CEO statements and online data points if available. To evaluate these opportunities use our "Future valuation calculator" where return is calculated based on revenue growth, profit margin and terminal P/E. Time horizon is usually shorter for this category. Cyclical industries may present temporary valuation opportunities, but require careful attention to macroeconomic trends. Moat and quality is not as important for this category with short time horizon.

• To find cases you can discuss with other investors on X, but true conviction only comes from deeply understanding the case yourself. Example cases:

• Nelly.com case — according to @Matematikern3 Nelly has reduced its assortment from 350 to 150 external brands and cut the number of SKUs from 16,000 to 9,000, which has improved gross margins, lowered return rates, and increased profitability. @Matematikern3 highlights that the company now has a strong shareholder base led by Stefan Palm — whom he has great confidence in — along with a capable management team and board, and an efficient supply chain supported by its Autostore warehouse. Westberg points out that Nelly has demonstrated clear operational improvements through cost-saving programs, better unit economics, and higher margins (e.g., GM3 above 30% in Q3–Q4). However, he believes the market has yet to fully price in the company’s potential for accelerating growth and stronger cash flow.

• @nemcap example: A good example of how my methodology can look is IAR Systems, which I invested in around SEK 37 in 2013. The company had strong growth, extremely high gross margins (around 90%), and an operating margin that had not yet taken off (7%). My thesis was simply that I was “only” paying 13–15x earnings for a company whose margin could multiply while revenue grew significantly over 2–3 years. The position size was around 30–40%. IAR Systems’ EBIT margin was over 30% in the most recent quarter.

• What you really want to do in investments is figure out what's important and knowable. If it's unimportant or unknowable you forget about it - Buffett

• so, sort out what is relevant for this case and what you need to know and follow up on.

• Investors: Mohnish Pabrai, Warren Buffett, Nemcap, Petter Hedborg

• E, Special Situations

  Its possible to find companies that are undervalued due to special situations, like spin-offs, mergers, bankruptcies, etc. Some investors, like Joel Greenblatt, have made significant returns by focusing on these situations.

• Buffett's strategy in arbitrage and workouts focuses on finding special situations with a high likelihood of success, a favorable risk-reward balance, and a reasonable time horizon. By concentrating on understanding the event's likelihood, evaluating the potential risks and rewards, and considering the time involved, investors can aim for steady and reliable returns, independent of general market movements.

• Types of Workouts/Arbitrage

  • Merger Arbitrage: Profit from the price difference when a company's stock trades below the acquisition price after a merger announcement.
  • Liquidations: Invest in companies selling off assets, aiming to benefit from the distribution of liquidation proceeds.
  • Reorganizations and Restructurings: Capitalize on value changes during a company's restructuring process.
  • Spin-offs: Acquire shares that may be undervalued during the separation of a subsidiary from its parent company.
  • Bankruptcy Proceedings: Purchase distressed securities with potential for significant recovery upon successful reorganization.
  • Rights Offerings and Recapitalizations: Participate in favorable share issuances or capitalize on changes in a company's capital structure.

• Buffett's Compact Steps to Evaluate Workouts/Arbitrage

  • Understand the Likelihood of Event Completion:
    • Assess Probability: Evaluate how likely it is that the corporate event will successfully occur.
    • Identify Obstacles: Look for any regulatory, financial, or approval issues that could prevent the event.
  • Evaluate Risk vs. Reward:
    • Calculate Potential Gain: Determine the expected profit if the event succeeds.
    • Assess Potential Loss: Understand the downside if the event fails.
    • Margin of Safety: Ensure the potential reward justifies the risk involved.
  • Consider the Time Frame:
    • Estimate Duration: Know how long your capital will be tied up.
    • Annual Return: Assess the return relative to the investment period to ensure it's worthwhile.

• Key Principles to Remember

  • Thorough Research: Deeply understand the specifics of the corporate event and its implications.
  • Risk Management: Be aware of what can go wrong and have strategies to mitigate potential losses.
  • Discipline and Patience: Only invest when the opportunity clearly outweighs the risks.
  • Prudent Use of Leverage: If using borrowed funds, do so cautiously to enhance returns without compromising safety.
  • Diversification: Spread investments across multiple opportunities to reduce overall risk.

• Analysing special situations require a lot of work, so stay away if this is not within your circle of competance. Since unexpected crises always come we do not invest in these companies. Instead we always focus on great companies with strong moats and good management. These companies get stronger in a downturn, since they can buyback stocks, buy competitors and take market share.

• Investors: Joel Greenblatt, Warren Buffett

• E, Cigar butt investing

  This strategy involves buying a diversified basket of stocks that are trading at a discount to their intrinsic value. The idea is that the stocks will eventually recover and the basket will be worth more than the sum of the individual stocks.

• Cigar butt investing focuses on finding deeply undervalued stocks that still have a little value left—like picking up a cast-off cigar for one last puff. Here are the essentials:

• Look for Extreme Undervaluation:

  • Seek companies trading below their net current asset value (i.e., current assets minus total liabilities).
  • Verify the stock price is so low that the downside is limited, but there is potential for a small upside gain.

• Focus on "Margin of Safety":

  • Inspect whether the company has more tangible assets (like cash, inventory, or receivables) than the market is accounting for.
  • Ensure that the depressed price reduces risk to a minimum, even if the company itself has a bleak outlook.

• Scrutinize Balance Sheets:

  • Pay special attention to a company's liquidity and solvency (e.g., low or manageable debt).
  • Examine whether short-term assets can cover liabilities, giving the potential for a quick rebound.

• Expect Short-Term Gains—not Long-Term Growth:

  • Once the stock price recovers to a fair value (or the net assets are realized), the idea is to exit and lock in a profit.
  • These aren't typically robust, ongoing businesses you hold for many years—just quick, final "puffs" of value.

• In practice, identifying these "cigar butts" often requires sifting through overlooked, distressed, or out-of-favor companies, then carefully calculating whether the company's real assets outweigh its market valuation.

• To succed in this category you need to be strong in quantitative analysis. Moat and quality is not as important for this category.

• Investors: Ben Graham, Warren Buffett

• TAM/SAM Analysis

  TAM (Total Addressable Market) represents the total revenue opportunity available for a product or service if it achieves 100% market share. SAM (Serviceable Available Market) is the portion of TAM that is within a company's geographical reach and product/service capabilities.

• Market capitalization

  Small-cap companies offer high potential for outsized returns, as their lower starting point allows for significant growth, what Peter Lynch called “small companies have big moves.” He favored small, profitable firms with repeatable models that could scale within a niche. Similarly, 100 Baggers author Christopher Mayer highlights the importance of matching market cap with a large Total Addressable Market (TAM); for example, a $300M company in a $50B market has room to grow if its fundamentals are strong. This is where the Reversed DCF (RDCF) model becomes essential: if the implied valuation requires a 10x return over time, the TAM must be big enough to support that growth. Large-cap companies like Apple or Nvidia, in contrast, need to find entirely new markets (like AI) to deliver similar returns. Regardsless the math need to works in an RDCF, i.e. the TAM need to be large enough for the company to be able to grow. Robert Hagstrom reinforces this by noting that the digital economy is fundamentally different—we’ve never seen returns on capital at these levels before. It’s therefore not surprising that today’s digital, highly scalable companies command such enormous market capitalizations.

• Key Components of Analysis:

  • Potential Market Share: Estimate the percentage of SAM the company can realistically capture based on competition, market trends, and strategic advantages.
  • Potential Profit Margin: Determine expected profit margins by analyzing costs, pricing strategies, and industry benchmarks.
  • Future P/E Ratio: Estimate based on industry standards and growth expectations to value future earnings.

• Calculation Framework:

  • Future Revenue = SAM × Potential Market Share
  • Future Profit = Future Revenue × Potential Profit Margin
  • Future Market Cap = Future Profit × Future P/E Ratio

• This analysis helps estimate a company's total market capitalization potential several years into the future, providing a framework for evaluating long-term investment opportunities.

• Asset play

  If you find a company that has a lot of assets, real estate, forest,like land, buildings, etc, and the market is not valuing them, then you can buy them at a discount.

• To evaluate this we compare NAV (Net Asset Value) to market cap. NAV is the total value of a company's assets minus its liabilities. If NAV is higher than market cap, then its a possible opportunity. However, we need to understand the quality of the assets, and if the assets can be sold at a premium to the market price.

• Handling Black Swan Events

  Black swan events are unpredictable events that have severe consequences. Having a systematic approach to handle these events can help maintain composure and potentially find opportunities during market turmoil.

• Understand the Narrative, but Avoid Herd Mentality

  • Identify the core issue driving the panic
  • Avoid making impulsive decisions based on media hysteria
  • Whats important to figure out is if something fundamental to the business has changed or if just the price has gone down. So if this is just a temporary cloud, then it is a good opportunity to buy.
  • Use first principles thinking to figure out if the company is fundamentally strong.

• Zoom Out & Maintain Emotional Discipline

  • Take a step back and analyze the bigger picture
  • Meditate, exercise, or engage in activities that enhance clarity

• Ask the Right Questions – Challenge the Herd & Use First Principles

  • What is the real impact on the economy, industries or business?
  • Is this event affecting company moat or growth?
  • Is the herd wrong? If so, what are they missing?
  • Are they overreacting or underestimating the impact?
  • Are they focused on the wrong variables?

• Go deep if needed

  • Review historical patterns of similar crises
  • Seek opinions from real experts in the field, not just popular commentators
  • Avoid social media-driven consensus unless backed by strong reasoning

• Act Contrarian If the Risk/Reward is Asymmetric

  • Be prepared to buy when others panic, but only with solid reasoning
  • Assess risk/reward and size positions accordingly

• Black Swan Preparedness & Asymmetric Hedging

  Markets consistently underreact in the early phase of major shocks. At the onset of the COVID-19 pandemic, risk assets traded almost normally for weeks despite rapidly deteriorating fundamentals. Bill Ackman took advantage of this gap, confident enough that consensus was not yet awake. The gap between reality and pricing creates a narrow window for outsized, asymmetric opportunities.

  The objective is to be mentally and analytically prepared before these events occur.

  Study prior playbooks:

  • Bill Ackman's use of credit default swaps (CDS) during COVID
  • John Paulson's subprime CDS trades during the 2008 financial crisis

  Both shared a common structure: limited downside (small premium) with extreme upside (10–50x+) if tail risk materialises.

• Late-Cycle Signals

  Continuously scan for mispriced tail risk in credit markets, where default risk is structurally underestimated, insurance (CDS) is cheap relative to potential payout, and participants assume "this cannot happen".

  • Rising delinquencies or early credit stress
  • Aggressive underwriting standards
  • High leverage and weak interest coverage
  • Large upcoming maturity walls
  • Structural fragility (e.g., refinancing dependence)

• Opportunity Areas & Execution

  Where to look (context-dependent):

  • Commercial real estate (e.g., office exposure)
  • Consumer credit / ABS
  • Over-levered private-equity-backed companies
  • Any crowded, yield-seeking segment with compressed spreads

  How to execute:

  • Focus on asymmetric bets — small, controlled cost with outsized payoff potential
  • Use CDS or selective short credit positions
  • Size positions as portfolio insurance, not core holdings
  • Act early — before spreads widen and protection becomes expensive

  Mindset: This is not reactive investing. It requires pre-built conviction, willingness to act against consensus, and comfort with being early and temporarily wrong. The edge comes from recognising that markets price risk linearly, while reality unfolds non-linearly.

• Historically I deal in five or six asset buckets. It tends to keep me out of trouble in terms of playing in an area where I shouldn't be playing at a particular time. - Stanley Druckenmiller

• Mastering Multiple Asset Classes

  A serious value investor isn't tied to one asset class. The edge comes from rotating capital to wherever the margin of safety is highest. Security selection is the craft; asset allocation is where the compounding really happens.

  Gold. Matthew McLennan treats gold as the portfolio's reserve currency. Supply grows roughly 1% per year, it doesn't decay, and its value isn't tethered to earnings or GDP. Add when neglected; trim when risk assets are cheap.

  Bitcoin. Bill Miller calls it digital gold — fixed supply, no central authority. Adoption is still evolving, which makes it more volatile than gold; that volatility is also what creates the deeper dislocations to exploit.

  Bonds. Stanley Druckenmiller treats bonds tactically, not defensively. When real yields are attractive, bonds offer asymmetric upside; when yields are suppressed, they become return-free risk. "Safe" depends on price, like everything else.

  Oil. A cyclical, supply-driven asset. Underinvestment today seeds tomorrow's shortages. Oil gets extremely cheap in downturns and extremely profitable in tight markets — the classic mean-reversion play tied to real-economy constraints.

  Stocks. Allocation matters within equities too. Buffett's Berkshire Hathaway routinely holds large cash positions when valuations are stretched, effectively turning equities into a partial hedge. The flexibility to deploy capital in downturns is itself an asset.

  Mastering multiple asset classes lets you rotate capital — not just pick securities. Value isn't static; it moves between assets.

• One of the most important things to do is not to play when you don't see a fat pitch. - Stanley Druckenmiller

• Past bear markets are seen as an opportunity, current and future bear markets are seen as a risk. - The Motley Fool

• The riskiest time to invest is when the market looks safest, and the safest time to invest is when the market looks riskiest.

• If you cannot buy now in the market when prices are falling a lot, then you cannot BUY at all, because if it's the end of the world, why does it matter - Bill Miller citing Keynes

• - Bill Miller discussed how plunging prices signal opportunities unless you believe in an apocalyptic collapse, that will probably not happen this time either, and if it happend - then it doesn't matter what we do :-)

• This too shall pass away - Abraham Lincoln

• Crises past away and human race continue to improve and move forward. Companies grows 6-7% yearly and give 2% dividend on average, so 8-9% growth on stocks, so stocks will continue to make new records in the future since earnings continue to incresase. - Francois Rochon

• Bill Miller and Stoic Principles

  Bill Miller, famous for beating the S&P 500 for 15 consecutive years at Legg Mason, has openly drawn on stoic philosophy, especially during hard times:

  Separating emotions from outcomes

  During the 2008 crisis, Miller's fund collapsed, and he became a target of ridicule. He used stoic principles to accept reputational damage as outside his control, while continuing to refine his process.

  Process over outcome

  He emphasized judging himself by whether he followed his investment discipline, not whether markets agreed in the short term. This is straight from Epictetus' idea: "You control your actions, not the outcome."

  Amor fati in practice

  Miller saw downturns as opportunities — in 2008/2009, while many capitulated, he doubled down on Amazon and financials. That ability to embrace pain as potential opportunity reflects the stoic embrace of fate.

  Courage under volatility

  He once said the real edge is the ability to withstand drawdowns others cannot. That's both stoic resilience and investor differentiation.

  On suffering and reputation

  Miller accepted public humiliation (losing his star-manager status) with equanimity, and later rebuilt his reputation with Miller Value Partners. Very stoic: fortune's reversals don't define character.

  ✅ In practice for you as an investor:

  • Before a downturn, pre-commit to how you'll act (rebalancing, holding, buying).
  • When volatility hits, remind yourself: "This is outside my control — but my response is mine."
  • Use downturns as tests of character, not just portfolio.

• Great investors

  Value: Bill Miller,Bill Ackman,Warren Buffett,Charlie Munger,Peter Lynch,Philip Fisher,Guy Spier,Mohnish Pabrai,Seth Klarman,John Tempelton,Nemcap (on X),Joel Tillinhast,Francois Rochon,Matthew McLennan,Phil Town,Stanley Druckenmiller,Bryan Lawrence

• Macro: David Tepper,Ray Dalio,Howard Marks,George Soros,Stanley Druckenmiller,Paul Tudor Jones

• Great book about investing

  Richer, Wiser, Happier: How the World's Greatest Investors Win in Markets and Life , by William Green

• The Intelligent Investor , by Benjamin Graham

• Security Analysis , by Benjamin Graham

• Common Stocks and Uncommon Profits , by Philip Fisher

• One Up on Wall Street , by Peter Lynch

• Beating the Street , by Peter Lynch

• The Dhandho Investor , by Mohnish Pabrai

• The Most Important Thing , by Howard Marks

• The Little Book That Still Beats the Market , by Joel Greenblatt

• Margin of Safety , by Seth Klarman

• The Warren Buffett Way , by Robert Hagstrom

• Warren Buffett's Ground Rules, by Jeremy C. Miller

• The Motley Fool Million Dollar Portfolio, by David Gardner, Tom Gardner

• Meditaion, to be able to zoom out and see the full picture.

• Exercise, to be able to think clearly.

• Sleep, to be able to think clearly.

• Read, to gain knowledge.

• Write, to remember.

• Be humble, admit, reflect and learn from mistakes.

• Be curious and open minded, there are always new things to learn. Beginners mind! Beginner’s mind is essential in investing because it keeps you humble, curious, and adaptable, allowing you to question assumptions and stay open to new opportunities as markets change.

• Be thankful.

• Be patient, follow the process and wait for the story to turn out. Trust the process.

• Be disciplined, follow the process. Don't let your decision be affected by temporary price movements.

• Be focused, focus on the business fundaments.

• Discuss, to get another perspective. Listen to people with different views.