REMEMBER

You Are
NOT Special.
You Are NOT
Exceptional.
Welcome to Value
Investing Blueprint
 About Me
• MBA in Finance (Not my claim to fame)
• 15+ years experience in the stock market (which does
not matter much)
• An average investor (happy to remind myself that often)
• Started Safal Niveshak in 2011 to teach people how to
make sensible investment decisions (I believed at least
some of them would listen, but…)
• Believe that if aliens landed on Earth and examined the
workings of our stock markets and the behavior of
brokers, analysts and experts, they would no doubt
question the intelligence of the planet’s inhabitants.
 One More Thing About Me – I Am Selfish

So, this course

is more about ME,
and less
about YOU.
 Flow of Value Investing Blueprint Course
Date Lecture # Topics

24-Feb Lecture 1 Value Investing - Principles, Rules, etc.

25-Feb Lecture 2 Behavioural Finance

03-Mar Lecture 3 Financial Statement Analysis (FSA)

04-Mar Lecture 4 Ratio Analysis

10-Mar Lecture 5 Business Quality, Moat, Management Quality

11-Mar Lecture 6 Valuations + Detailed Q&A

Your Most Important Companion
Who’s He?
Meet Bruce Wayne. Batman.

Spoiler Alert!

He does not
actually exist.
He is fiction.
Okay, There Are Some Real Special People
What’s This?
 Where Will
Michael Jordan
Fit on the Bell
Curve?
Where Will This
Guy Who Ate
Too Many
Cheeseburgers
Fit In?
We’re All Pretty Average at Most Things
But, Can’t We All
Be Extraordinary?
Want Some Broccoli?
When I wanted to
teach my kids
about how to
remain happy…
My Second Happiness Advice to My Kids

Aim for the sky.

But, keep LOW expectations.
You Are Not Special. You Are Not Exceptional
You are here
and, most likely,
you’ll be here
always. AND
THAT IS FINE.
 What Being Special and Exceptional
May lead You To

These guys were

exceptional.
But they all were
disasters in handling
their and other
people’s money.
What's the secret of
a great marriage?

It's not looks, nor

intelligence, nor
money -- it's low
expectations.
~ Warren Buffett
 Let Me Cheer You Up. Let’s Play a Game
How much would you bid to buy this Rs 100 note from me?

A few rules –

• The bids would start at Rs 10 and in

multiples of Rs 10 thereafter.
• A person can talk only to place the
bid during the auction and for no
other reason.
• The highest bidder wins the auction
and gets the Rs 100 note.
• The second highest bidder (runner-up) has to pay me an amount
equivalent to his bid.
 Three Critical Lessons Learned
1. Our brain shuts off during
auctions, and we easily and
blindly trust others, without
knowing their
intentions/incentives.
(Warning – Most people in the financial industry have
mis-aligned incentives)
2. We all fixate and concentrate
on un-important stuff and
become blind to the obvious.
3. We Hate Losing

Won’t sell. Wait! This is Won’t sell! No point

It’ll rise again! overdone selling!
I like to win, but
more than anything,
I can’t stand this
idea of losing.

Because to me,
losing means death.
~ Lance Armstrong, who lost
everything because he never
wanted to lose
Welcome to the Stock Market
The Story of
My Experiments
With The
[Investing] Truth
 “I don’t throw darts at a
board. I bet on sure things.”
~ Gordon Gekko, Wall Street

What an easy way to

get rich!
~ Me, in 2003
 Jan. 2008
When I joined my Sensex @ 21k
stock market job
(Apr. 2003 - Sensex @ 3k)

Gekko Sir was right!

Stock market is a sure thing.
Such an easy way to get rich!
 Jan. 2008
Sensex @ 21k
Mar. 2009
Sensex @ 8k

But I was taught that stock market was

a sure thing and that intelligent
people always make money, and …
 “It's only when
the tide goes out
that you learn
who's been
swimming
naked.”
~ Warren Buffett
 What people see stock market as…
“In theory there
is no difference
between theory
and practice. What stock market actually is…

In practice
there is.”
~ Yogi Berra
 LUCK

Investing’s
Fundamental
Forces
SURPRISE UNCERTAINTY
 Ten
[Practical]
Lessons
Learned
 1. Temperament, NOT Intelligence

INVESTING

1% What You Know

+ 99% How You Behave
 Newton’s Nightmare
Newton re-
enters with a
big lot

Newton’s
friends get Newton
even richer exits…broke

Newton exits
richer and
happy

Newton invests a bit

It’s Not Just About Greed and Fear
 Factors That Drive Returns

MARKET TIMING,
HOW MUCH
1. HOW YOU BEHAVE YOU KNOW,
2. HOW MUCH YOU HOW WELL YOU
HAVE IN STOCKS ANALYZE,
CNBC, YOUR
BRO-IN-LAW
 2. Permanent Capital Loss, NOT Beta

“Using volatility as a measure of

risk is nuts. Risk to us is 1) the risk
of permanent loss of capital, or
2) the risk of inadequate return.”

~ Charlie Munger
 Which Is The Best Stock?
August 2003 – April 2004 July 2007 – March 2009

August 2003 – November 2016

 3. Remember the Obvious,
DON’T Grasp the Esoteric

What You
Understand

What You Don’t

Understand
 Derivatives are Esoteric
– Avoid Them By Far

“It’s like the slaughter of the

innocents. It makes the
people who run Las Vegas
seem like good people.”
~ Charlie Munger
 4. Inaction,
NOT Action

“All of humanity's
problems stem from
man's inability to sit
quietly in a room
alone.”
~ Blaise Pascal
Why 90% of
M&As fail?
Best investors are
DEAD investors!
~ Fidelity study for a period
between 2003 and 2013
How Charlie Munger Thinks
5. Luck, NOT Only Skill
Only Thing You Control - PROCESS
PROCESS – The ONLY Thing You Control
PROCESS – The ONLY Thing You Control
Great Profit = Great Decision?
3x in 2 years

Down 95% after

3x in 2 years
 6. It’s A Loser’s Game
Pro Tennis Amateur Tennis
 Never Lose Money
Rs 100 compounded for 20 years
2,000
Two rules of investing – 1,637
• Both A & B compounded at 15%
1,500 p.a. for 20 years
1. Rule No.1: Never lose • B lost 50% in the 6th year
money. 1,000
712
2. Rule No.2: Never 500
forget rule No.1.
-
~ Warren Buffett
0 2 4 6 8 10 12 14 16 18 20
Investor A Investor B
7. When Facts Change, Change Your Mind
 Cost of NOT Changing Your Mind
Gains Required to Break Even
1000%
900%

750%
Gains
required to
reach Rs 100 500%
400%
again…
233%
250%
100%
67%
11% 25%
0%
90 80 60 50 30 20 10
If a Rs 100 stocks falls to Rs…
8. Minimize Mistakes of Bad Behaviour
 9. Think
Exponentially

Everyone takes the

limits of his own
vision for the limits
of the world.
~ Arthur Schopenhauer
Linear Vs Exponential
Linear Vs Exponential
 Exponential Thinking Has Helped
This Man Exponentially
US$ 100 in Berkshire Vs US Stock Market
2,000,000
BRK Book Value
BRK Mkt Value
1,500,000 $1,594,709
S&P 500

1,000,000
WB’s Age - 55 $800,031

500,000

- $11,414
0 5 10 15 20 25 30 35 40 45 50
 10. Be Humble…Always
“The humility required for good
judgment is not self doubt – the sense
that you are untalented, unintelligent or
unworthy.

It is intellectual humility. It is a
recognition that reality is profoundly
complex, that seeing things clearly is a
constant struggle, when it can be done
at all, and that human judgment must
therefore be riddled with mistakes.”

~ Philip Tetlock
 What’s Your Edge?

Informational Analytical Time Horizon

 Your Only
Sustainable Edge

“Just by lengthening the

time horizon, you can
engage in endeavors that
you could never otherwise
pursue…”
~ Jeff Bezos
How Big You Win When You
Extend Your Time Horizon
Average Holding Period of Stocks (Months)

100 This is where magic lies, and

this is your most sustainable
advantage as an investor
63

33
26
14
6

1960 1970 1980 1990 2000 2010

Source: NYSE Factbook
 Honey, I Made a Killing!

Made a killing!
Sold Here – A 5-Bagger
in Under 2 Years
Bought Here
 Now This Stock Kills Me Everyday

It’s a 40-bagger
from my original
Made a killing – Sold
purchase
Here – My 5-Bagger

Bought Here
 Another Smart Move

Sold here after 3

years and 0% return
Bought here
 Remember, Your Only Edge Is…

Informational Analytical Time Horizon

The Tortoise Really Beats the Hare
Biggest Lesson
I’ve Learned –

“It’s NOT
brilliance. It’s
just avoiding
stupidity.”
 Let’s talk about
Stock Investing

But before that…

“Gentlemen prefer bonds.”
~ Andrew Mellon

So Why Should
You Own Stocks?
 Stocks Outperform Bonds
Holding USA India Avg. Annual
Period (100 years) (35 years) Return

3 Year 67% 66% 15.6%

5 Year 69% 69% 14.9%

10 Year 80% 80% 15.1%

30 Year 99% 100% 16.2%

 What Would
You Have?
Option 1 –
₹2 crore NOW?

OR

Option 2 – ₹0.1 that

doubles daily for 30 days?
Now what would Rs 5.4 crore

you have?

Rs 2.0 crore

Option 1 Option 2
 Okay, Answer This…

If you put 1 grain of rice on the first

block of the chessboard, and double it
for every block, how many grains
would you have on the 64th block?
 How Close Was
Your Answer?

9E =
9,223,372,036,854,780,000
= 9,223 Quadrillion
How Do You Reach the
Moon for FREE?

Just fold a 0.001 cm

paper 45 times
A Formula To Change Your Life

F=P (1+R)T

Future
amount
Rate of
annual
Principal / interest
No. of
Starting years
amount
Money makes money.
And the money that
money makes, makes
money.

~ Ben Franklin
 Just $1, Mr. President

Just $1 invested from George Washington’s first

salary, at 8% p.a., would now be $42 million
 Was Mona Lisa Worth It?
• Commissioned in 1516
• Cost – US$ 20,000
• 2016 Value – US$ 790 million

Only if King Francis understood compound

interest and invested @ 6% p.a. –

$ 95,338,539,207,959,800

$ 20,000

1516 2017
Who Got the Better Deal on Manhattan Islands?
• Manhattan Indians sold the island
to Peter Minuit in 1626, for US$ 24
• Value in 2013 – US$ 825 billion
• CAGR growth – 7.4% (Not bad!)

But only if the Manhattan Indians

could’ve earned 8% p.a. on US$ 24 –

US$ 5140 Billion

US$ 825

At 7.4% At 8.0%
 Compound Interest Has Helped
This Man Become World’s Richest
US$ 100 in Berkshire Vs US Stock Market
2,000,000
BRK Book Value
BRK Mkt Value
1,500,000 $1,594,709
S&P 500

1,000,000
WB’s Age - 55 $800,031

500,000

- $11,414
0 5 10 15 20 25 30 35 40 45 50
 Revisiting the Magic Formula

F=P (1+R)T

Future No. of
amount Rate of years
interest

Principal /
Starting
amount
 Small Changes Over Long Term = Magic
Initial Investment = Rs 10,000
Time (Years) Rate of Return
5% 8% 10% 15% 20% 25%
5 12,763 14,693 16,105 20,114 24,883 30,518
10 16,289 21,589 25,937 40,456 61,917 93,132
15 20,789 31,722 41,772 81,371 154,070 284,217
20 26,533 46,610 67,275 163,665 383,376 867,362
25 33,864 68,485 108,347 329,190 953,962 2,646,978
30 43,219 100,627 174,494 662,118 2,373,763 8,077,936
35 55,160 147,853 281,024 1,331,755 5,906,682 24,651,903
40 70,400 217,245 452,593 2,678,635 14,697,716 75,231,638

Lesson – Start early. Take advantage of time on hand.

Have a sound investment process. Avoid losing money permanently.
Aim to compound at 20% p.a. (better than inflation)
 Journey to 30x: Years Per 5x*

9.0 * Assuming 20% return p.a.

4.0

2.0
1.5
1.0 0.8

1st 2nd 3rd 4th 5th 6th

 When Columbus Discovered America
• Columbus discovered America
in 1492
• VCs who sponsored the voyage
spent – $30,000 (in 1492)

Buffett wrote in his 1962 letter –

Figured very roughly, the $30,000

invested at 4% compounded
annually would have amounted to
something like $2 trillion by 1962.
 The Beautiful Tragedy of Compounding
• US$ 30,000 turned to US$ 2 trillion in 470 years (1492 to 1962)
• US GDP in 2016 – US$ 18.6 trillion

US GDP ($ Trillion)
20
18.6
15
Lesson?
10 11% of 2016 Remaining 89%
Compounding is
GDP came over took only next
5 470 years 2 54 years
BACKLOADED
0
0
1492 1962 2016
 Journey to 100x in 25 Years*
100
100
* Compounded Annual
Return – 20% 60x in 5
75
years

50
40

25 16
3 6
-
5 10 15 20 25
 Warren Buffett's Net 74,800
“If you’re even a Worth (US$ Million)
slightly above • 95% has been created after age 60 58,500
average investor who • 99% has been created after age 53

spends less than you

earn, over a lifetime
36,000

you cannot help but

get very wealthy – if 17,000

you’re patient.” 1 7 34 67 620

3,880

~ Warren Buffett 30 35 43 47 53 59 66 72 83 87

Buffett’s Age
A Remarkable Test of Patience
Applying the Power of
Compounding…

The Value
Investing Way
 What is Value Investing?
“…one which, upon thorough analysis,
promises safety of principal and an
adequate return.

Operations not meeting these

requirements are speculative.”
~ Benjamin Graham, Intelligent Investor

Thorough Safety of Adequate Value

Analysis Principal Return
Investing
The man who bought United States
Steel at 60 in 1915 in anticipation of
selling at a profit is a speculator. On the
other hand, the gentleman who bought
American Telephone at 95 in 1921 to
enjoy the dividend return of better than
8% is an investor.

“Speculation may be defined as the

purchase or sale of securities or
commodities in expectation of profiting
by fluctuations in their prices.”
~ Philip Carret
“…the distinction is not clear to most
people. Both investments and
speculations can be bought and sold.
Both typically fluctuate in price and can
thus appear to generate investment
returns. But there is one crucial
difference: investments throw off cash
flow for the benefit of the owners;
speculations do not. The return to the
owners of speculations depends
exclusively on the vagaries of the resale
market.”
~ Seth Klarman
“…in investment attitude you look at the
asset itself to produce the return. So if I buy
a farm and I expect it to produce $80 an
acre for me in terms of its revenue from
corn, soybeans etc. and it cost me $600.
I’m looking at the return from the farm
itself. I’m not looking at the price of the
farm every day or every week or every
year. On the other hand if I buy a stock
and I hope it goes up next week, to me
that’s pure speculation.”
~ Warren Buffett
 Opinions We Seek…
“It is not a case of choosing those
[faces] that, to the best of one’s
judgment, are really the prettiest, nor
even those that average opinion
genuinely thinks the prettiest. We have
reached the third degree where we
devote our intelligences to anticipating
what average opinion expects the
average opinion to be. And there are
some, I believe, who practice the
fourth, fifth and higher degrees.”
~ Lord Keynes
 Mirror Mirror on the Wall
Aren’t We the Prettiest of All?
“…the real test of how you, what you’re
doing is whether you care whether the
markets are open. When I buy a stock,
I don’t care whether they close the stock
market tomorrow or for a couple of years.

Now if I care whether the stock market is

open tomorrow then I say to some extent
I’m speculating because I’m thinking
about whether the price is going to go up
tomorrow or now.”
~ Warren Buffett
The author asked, “Do you know why
people go into stock speculation?”

“To make money,” the person replied.

“Not at all,” said the author, “They go in

for the pleasure of getting something for
nothing. What they want is a thrill.

“That is why we drink bootleg whisky, and

take new jobs. We want thrills. It’s
perfectly human, but Wall Street is a poor
place to look for thrills, for the simple
reason that thrills in Wall Street are very
expensive.”
 But Everyone’s Doing That!
“Men, it has been well
said, think in herds; it
will be seen that they
go mad in herds, while
they only recover their
senses slowly, one by
one.”
~ Extraordinary Popular Delusions
and the Madness of Crowds by
Charles Mackay
If you don't know who
you are, this (the stock
market) is an expensive
place to find out.
~ Adam Smith (George Goodman)
 So, When Should You
Not Speculate?
There are two times in
a man's life when he should
not speculate: when he
can't afford it, and when he
can.
~ Mark Twain
 Let’s Now
Talk About
Value
Investing
 First, What’s “Value” in Value Investing?
If I offered you a 50% stake in my
tea business, how much would you
pay for it?
A few pointers –
• I will share 50% of my profits with
you over the next five years
• I made around Rs 1 lac (after all
expenses) last year selling tea.
So, my total profit over 5 years is
likely to be Rs 5 lac, assuming my
business does not grow at all.
How much would you pay?
 Okay, Choose Your Price

1. Rs 2.5 lac (same as 50% of

total profit the business will
earn over the next 5 years)
2. Rs 3.5 lac (you’re getting
stake in such a wonderful
business)
3. Rs 1.5 lac (it’s just a tea
stall, after all)
4. Any other price

What’s your choice? Why?

 What Do You Say?

1. Rs 2.5 lac TODAY = Rs 2.5 lac OVER 5 YEARS

2. 2.5 lac TODAY > Rs 2.5 lac OVER 5 YEARS

3. Rs 2.5 lac TODAY < Rs 2.5 lac OVER 5 YEARS

Year 1 2 3 4 5 Total
Inflow 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 6% 6% 6% 6% 6%
Present Value 47,170 44,500 41,981 39,605 37,363 210,618
What Can You Do With Your Money Today?
Year 1 2 3 4 5 Total
Inflow 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 6% 6% 6% 6% 6%
Present Value 47,170 44,500 41,981 39,605 37,363 210,618
Year 1 2 3 4 5 Total
Inflow 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 10% 10% 10% 10% 10%
Present Value 45,455 41,322 37,566 34,151 31,046 189,539
Year 1 2 3 4 5 Total
Inflow 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 15% 15% 15% 15% 15%
Present Value 43,478 37,807 32,876 28,588 24,859 167,608
 3 Very Critical Lessons Worth Remembering

1. Opportunity Cost – What you have to give up in order to

get something. So choose the best.

2. A rupee today is worth more than a rupee tomorrow

which is more than a rupee day after tomorrow (Rs 2.5 lac
over five years < Rs 2.5 lac today, because you can earn
some interest on this Rs 2.5 lac starting today)

3. Successful investing is – Figure out what a business is

worth, then pay a lot less for it.
 The Most Important Definition of
Value Investing
Figure out what a
business is worth

+
Pay a lot less for it
 Why Pay a Lot Less?
1. Future could be anything than what you predict today
(What if my tea stall does not earn Rs 1 lac in annual profit?)
Year 1 2 3 4 5 Total
Projected Inflow (A) 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 15% 15% 15% 15% 15%
PV of A 43,478 37,807 32,876 28,588 24,859 167,608
Actual Inflow (B) 50,000 40,000 30,000 20,000 20,000 160,000
PV of B 43,478 30,246 19,725 11,435 9,944 114,828
 Why Pay a Lot Less?
2. Even if you are right about the future, you may be wrong
about WHEN it actually happens? (So you still get Rs 2.5 lac,
but more during the later part of the period, when the value
of every rupee is even lower)
Year 1 2 3 4 5 Total
Projected Inflow (A) 50,000 50,000 50,000 50,000 50,000 250,000
Interest Rate 15% 15% 15% 15% 15%
PV of A 43,478 37,807 32,876 28,588 24,859 167,608
Actual Inflow (B) 20,000 30,000 50,000 70,000 80,000 250,000
PV of B 17,391 22,684 32,876 40,023 39,774 152,748

3. Because, like me, you have always been unlucky in life

 The Most Important Concept in Investing
You don't try to buy businesses
worth $83 million for $80 million.
You leave yourself an enormous
margin.

When you build a bridge, you

insist it can carry 30,000 pounds,
but you only drive 10,000 pound
trucks across it. And that same
principle works in investing.
~ Warren Buffett
 The Law of Valuation
Valuation is the closest thing to
the law of gravity that we have in
finance. It is the primary
determinant of long-term returns.

However … when investors violate

[this principle] by investing with no
margin of safety, they risk the
prospect of the permanent
impairment of capital.
~ James Montier
Businesses Also Provide Margin of Safety

V/S
 Primary Goal of Value Investors
A margin of safety is necessary because –

• Valuation is an imprecise art,

• Future is unpredictable, and

• Investors are humans and do make

mistakes (a lot of them).

Primary Goal of Value Investors – Preservation of Capital

The fault, dear Brutus,
is not in our stars,
but in ourselves.
~ Julius Caesar

The fault, dear investor,

is not in our stars – and
not in our stocks – but in
ourselves.
~ Ben Graham
Getting Rich Vs Staying Rich
 The Simplest Route to Destruction
Germansky, Livermore
Most investors during rising markets

More likely
More
More you are to
convinced Less open
successful tripping in a
you become you are to
you are at world that
that you’re change
something changes all
doing it right.
the time
The Simplest Route to Staying Rich
Beware the Swelled Head
I sometimes think that no price
is too high for a speculator to
pay to learn that which will
keep him from getting the
swelled head. A great many
smashes by brilliant men can
be traced directly to the
swelled head. It’s an expensive
disease everywhere to
everybody, but particularly to a
speculator.
~ Jesse Livermore
So It’s Fine If You Are Not Exceptional
Grave mistakes are
avoided here.
Contentment and
happiness lies here.
Probability That One Investor Will Outperform Each Year
Percent of Investors that Outperform the Market
Years
10% 20% 30% 40% 50% 60%
1 1 in 10 5 3 3 2 2
2 1 in 100 25 11 6 4 3
3 1 in 1,000 125 37 16 8 5
4 1 in 10,000 625 123 39 16 8
5 1 in 100,000 3,125 412 98 32 13
6 1 in 1,000,000 15,625 1,372 244 64 21
7 1 in 10,000,000 78,125 4,572 610 128 36
8 1 in 100,000,000 390,625 15,242 1,526 256 60
9 1 in 1,000,000,000 1,953,125 50,805 3,815 512 99
10 1 in 10,000,000,000 9,765,625 169,351 9,537 1,024 165
11 1 in 100,000,000,000 48,828,125 564,503 23,842 2,048 276
12 1 in 1,000,000,000,000 244,140,625 1,881,676 59,605 4,096 459
13 1 in 10,000,000,000,000 1,220,703,125 6,272,255 149,012 8,192 766
14 1 in 100,000,000,000,000 6,103,515,625 20,907,516 372,529 16,384 1,276
15 1 in 999,999,999,999,998 30,517,578,125 69,691,719 931,323 32,768 2,127
 6 Principles of
Value Investing
Circle of
Business Analyst
Mr. Market Principle Competence
Principle
Principle

Margin of Safety
Moat Principle Owners Principle
Principle
1. Mr. Market Principle
“In the short run, the
market is a voting Voting Machine

machine but in the

long run, it is a
weighing machine.”
~ Benjamin Graham
Weighing Machine
 2. Business Analyst Principle

When investing, we
view ourselves as
business analysts – not
as market analysts, not
as macroeconomic
analysts, and not even
as security analysts.
~ Warren Buffett, 1987 letter
We select our marketable equity securities in much the same way
we would evaluate a business for acquisition in its entirety. We want
the business to be –

(1) one that we can understand,

(2) with favorable long-term prospects, Business Analysis
(3) operated by honest and competent people, and
(4) available at a very attractive price.

We ordinarily make no attempt to buy equities for

anticipated favorable stock price behavior in the short term. In fact,
if their business experience continues to satisfy us, we
welcome lower market prices of stocks we own as an opportunity
to acquire even more of a good thing at a better price.
~ Warren Buffett, 1987 letter
 3. Circle of Competence Principle

Q: How do you beat

Bobby Fischer?

A: You play him at any

game but chess. You
must try to stay in games
where you have an edge.
Meet Mrs. B

• Russian immigrant
• Poor English
• Founded NFM in 1937
with $500 loan from
her brother
• 2015 Value - $1 bn
(So, 20% CAGR over
78 years)
Knowing what you
DON’T know is
more useful than
being brilliant.
~ Charlie Munger
I bought the tech market very
well in mid-1999 and sold
everything out in January and
was sitting pretty; and I had two
internal managers who were
making about 5% a day and I
just couldn’t stand it. And I put
billions of dollars in within hours
of the top. And, boy, did I get
killed the next couple months.

…violated every rule I learned in

25 years.
~ Stanley Druckenmiller
 4. Moat Principle

Moat = Competitive advantage

= Something that differentiates the
company from its nearest
competitors – either in service or
low cost or taste or some other
perceived virtue that the product
possesses in the mind of the
consumer versus the next best
alternative…
~ WB, Outstanding Investor Digest
 5. Margin of Safety Principle

…to distill the secret of

sound investment into
three words, we venture
the motto, MARGIN OF
SAFETY.
~ Ben Graham
 6. Owner Principle

“Investment is
most intelligent
when it is most
businesslike.”
~ Ben Graham

The goal is not excitement,

but making a profit.
 Does Value
Investing Work?

Where “Experienced”
Stock Traders Live

Where Experienced
Value Investors Live
 Does Value Investing
Really Work?
By controlling risk and limiting loss through
extensive fundamental analysis, strict
discipline, and endless patience, value
investors can expect good results with
limited downside. You may not get rich
quick, but you will keep what you have,
and if the future of value investing
resembles its past, you are likely to get
rich slowly. As investment strategies go,
this is the most that any reasonable
investor can hope for.
~ Seth Klarman
 Does Value Investing
Really Work?
If you believe – as I have always
believed – that the value approach
is inherently sound, workable, and
profitable, then devote yourself to
that principle. Stick to it, and don’t
be led astray by [stock market’s]
fashions, its illusions, and its constant
chase after the fast dollar.
~ Ben Graham
What It Takes to Succeed in Value Investing?
…it does not take a genius or even a
superior talent to be successful as a
value investor.

What it needs is…

• First, reasonable good intelligence;

• Second, sound principles of
operation;
• Third, and most important, firmness
of character.
~ Ben Graham
But, Not Everyone Gets It!

Warren Buffett once wrote that

value investing is like an
inoculation – it either takes or
it doesn’t – and when you
explain to somebody what it
is and how it works and why it
works and show them the
returns, either they get it or
they don’t.
~ Seth Klarman
 Why Everyone Won’t Do It?

There seems to be some perverse

human characteristic that likes to
make easy things difficult. The
academic world, if anything, has
actually backed away from the
teaching of value investing over
the last 30 years (this was in 1984).
It’s likely to continue that way.
~ Warren Buffett
The stock market and the
battlefield aren’t as tidy as
the chessboard. But in all
of them, a single simple
rule holds true: make
good decisions and you’ll
succeed; make bad ones
and you’ll fail.
~ Garry Kasparov in How Life Imitates Chess
The stock market and the
battlefield aren’t as tidy as
the chessboard. But in all
of them, a single simple
rule holds true: make
good decisions have a
good process and you’ll
succeed; make bad ones
have a bad one and you’ll
fail.
~ Garry Kasparov in How Life Imitates Chess
Great Things
Take TIME
“Time is the friend
of the wonderful
company, the
enemy of the
mediocre.”
How Do You Get to Carnegie Hall?
Mr. Bolt,
How Much
Did You Run?
“You don’t have to
be brilliant, only a
little bit wiser than
the other guys, on
average, for a long,
long time.”
 REMEMBER

You Are
NOT Special.
You Are NOT
Exceptional.
Thank You!