Tuesday, May 17, 2011

Notable and Quotable from Better Lucky Than Good

I just finished Better Lucky Than Good, a book on general investing theory. This book is more for the beginner than it is for the advanced investor. In fact, it is probably the perfect gift for an investment adviser to give to a new client. But it didn't satisfy me. I was tricked by the sub-title: "How savvy investors create fortune with the risk-reward ratio". That sounded to me like a technical exposition on balancing risk and reward, which is what drew me in. I was disappointed to say the least.
But I wanted to share a few of my favorite quotes, because on some level the book was helpful. You may find some of the basic accounting quotations not particularly relevant, but I wanted to denote them for my future reference. It's always good to brush up on things you don't use everyday, particularly when it comes to accounting.
  • The cornerstones of a good investment philosophy: a strong business model, good financials, an attractive valuation, and diversification.
  • Fear of being left behind is a powerful force and has caused many investors to make irrational decisions.
  • Paying attention to trends in analysts' comments or changes in them can help you make better investment decisions.
  • In looking at earnings estimates, analyst the trend over the last 60 days. Look for a clear trend of rising estimates (good) or falling estimates (bad) and pay attention to the actual [relative] size of the changes.
  • If you can learn to control your emotions, make rational decisions, and be willing to part with an investment, you will increase your overall returns.
  • Business and investing conditions change, so should your portfolio.
  • #1 Rule of Investing: Only do what allows you to sleep at night.
  • Use earnings estimate revisions as a signal to do more research.
  • If intangibles account for a significant portion of total assets, then shareholders equity could be overstated.
  • Beware if gross margins are narrow, especially if they are 10% or less. Such small gross margins suggest the company lacks pricing power.
  • A sharp increase or decrease in working capital should be examines. It could be an early sign the company is experiencing problems.
  • If a stock has a yield similar to bonds, shareholders are not being reimbursed for the additional level of risk.

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