Core philosophies

Most of my investment philosophies come from Benjamin Graham and Warren Buffett. On the top of that, I'm also influenced by many well-known value investors like Marty Whitman and Mohnish Pabrai. Below, I distill what I follow down to a few core principles. (I'll probably write up individual blog posts in the future to expand on them.)

Investing in a business, not a piece of paper - "Investing is most intelligent when it is most businesslike" -- Ben Graham. (Corollary: Investing for long-term. Businesses don't change on a day-to-day basis.)

Buying a dollar for fifty cents - Price is what you pay. Value is what you get. A business has an intrinsic value which can deviate from its share price significantly. Investing is about exploiting such mispricing.

Downside Protection - Watch you downside, the upside will take care of itself -- a phrase borrowed from Jeol Greenblatt. Downside protection comes in a few different forms. The most well known one is margin of safety. Another is asymmetric risk/reward. "Head I win; tail I don't lose much." -- Mohnish Pabrai. The reason is simple. We are compounding our capital. We are dealing with geometric mean, not arithmetic mean. Then, any disastrous impairment to the capital will have long lasting effect on the overall result. It's more important to avoid silly mistakes than achieving outsize returns.

Return of Equity - The single most important figure of any business, even if you are looking at net-nets.

Circle of Competence - Stay with what I understand and what I am comfortable with. I won't invest in companies that I don't understand or study.

Fat Pitch - Only swing the bat at fat pitches. High conviction in a decision gives you the needed staying power. Otherwise, when the market tumbles, you won't have the gut to double down. (Corollary: Run a concentrated portfolio and keep cash when there is no bargains.)

Sleep Well Factor -  Able to sleep well is important. If an investment will keep me awake at night, it deserves to be placed in the too-hard market.

Simplicity - "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over." -- Warren Buffett. This ties back to the issue of circle of competence. From time to time, there are investment opportunities which appear to offer oustanding upside but are extra complicated. I'd rather move on.

Allocate asset in the spirit of Kelly's Citerion - Size each position according to edge-vs-odd, with opportunity cost in check. In practice, I find Pabrai's 10/5/2 allocation strategy makes sense and simple to execute.

Less is More - Derive everything from its first principle. Memorising valuation techniques can only take you that far; being dogmatic on styles or approaches can only take you that far. Every investment situation is unique. What matters is the very few underlying immutable principles.


Supplementary rules of thumb

Aim for good enough returns - The paradoxical reality is, if you aim for good enough returns, you are usually rewarded with outsize returns. I aim for 15% p.a. return as what Buffett did in his early years.