A company whose long-term cash flow growth is predictable,
is expected to yield returns exceeding the opportunity cost,
and has a secured margin of safety even in the worst-case scenario.
We practice concentrated investment in a few select companies,
endure with the mental strength to overcome our own nature,
and it is a process of constant comparison with a flexible mindset.
Predictable Long-term Growth in Cash Flow
- We invest in companies that we can understand ourselves, through research based on checklists and our own experience.
- There is quality in probability. We invest in companies where the compounding growth of cash flow is predictable due to structural probabilities.
Expected Returns Exceeding Opportunity Cost
- We assess a company's absolute value using expected values that reflect various scenarios of cash flow and their respective base rates.
- We invest in the most attractively priced company relative to its value and constantly compare this opportunity cost with our current holdings.
- We strive to discover meaningful opportunities by turning over every stone in the market.
A Company with a Margin of Safety, Even in the Worst Case
- Forecasts can always be wrong.
- We only invest when the price is lower than the value calculated under a worst-case scenario.
- When our worst-case assumptions prove incorrect, we review the failure, gather feedback, and learn from it.
Concentrated Investment in a Few Companies
- Diversification can reduce volatility, but it also leads to mediocre returns.
- For investors who can withstand volatility through long-term holding, investing in their 7th best idea instead of their best one is not a good decision.
Mental Strength to Overcome Instinct
- Human nature is designed to easily fall into biases or be swayed by emotions.
- To overcome this, it is necessary to understand our limitations through the study of psychology, make investment decisions based on analysis and principles, and undergo long-term training by experiencing market fluctuations driven by financial crises, bubbles, and fear.
Constant Comparison with a Flexible Mindset
- A company's value is constantly changing. We periodically monitor and reassess it by applying Bayesian thinking.
- We must constantly compare opportunity costs with the flexibility to challenge our own ideas.
- By repeating this process, we can achieve long-term success in the equation of luck and skill.
