Lump Sum providing a 7% inflation-adjusted return

[Chris]

I've promised myself not to invest a penny though until I have read the book above and the one you recommended and have a good understanding of both.

A very wise decision. I have met more people who have lost money by rushing into investments, than those that have made money. In my experience a lot of people believe that successful investing is easy if you are willing to take the risk, but this simply isn't true. It may stem from the fact that it has become incredibly easy to buy and sell funds or equities or other investment products, but that would be simply akin to arguing that cardiac surgery is easy simply because the drive to and from the hospital is simple.

Just as an aside to my earlier comment about taking levels of debt into account when researching companies, I have now also applied this to the countries that I invest in. This has meant that I no longer hold investments in the US, UK (except for two mining companies), Spain and Italy. In my opinion sovereign debt is going to be a major problem for economies and their currencies.

 

[Jim2007]

I've promised myself not to invest a penny though until I have read the book above and the one you recommended and have a good understanding of both.

It is also very important to understand yourself - how you handle risk, your confidence in your own analysis and so. As someone once said value investing is all about arguing with the market!

Lets for example say that you have done your home work and concluded that a certain company is under valued and well worth investing in. So you make a small initial investment of say 5K and within days the price falls by 50%, what will you do?

Good luck with that,

Jim.

 

[txirimiri]

Chris, as a matter of interest, how do you make a judgement on governance issues within companies when analysing a company for investment? I ask because some time ago I invested a small amount of money in a small company having done an analysis based on a good understanding of the industry they were in, their comparative advantage in same and their medium term strategy. The same company was picked up on by some analysts and the strong consensus was that they represented an excellent investment.

The share price plummted over the following six months and has never recovered. I found out subsequently through someone who had worked with, but not in, the company that there were major governance issues, problems between CEO and Chair of the Board, resulting in paralysis in relation to decision making.

How do you deal with this type of potential problem?

 

[Firefly]

Interesting article on Vanity Fair about WB..
[broken link removed]

 

[jpd]

Another article on Warren Buffet - not so clean as he claims

http://moneywatch.bnet.com/economic...-resignation-is-warren-buffett-losing-it/957/

oops - wandering off topic

 

[Chris]

Chris, as a matter of interest, how do you make a judgement on governance issues within companies when analysing a company for investment? I ask because some time ago I invested a small amount of money in a small company having done an analysis based on a good understanding of the industry they were in, their comparative advantage in same and their medium term strategy. The same company was picked up on by some analysts and the strong consensus was that they represented an excellent investment.

The share price plummted over the following six months and has never recovered. I found out subsequently through someone who had worked with, but not in, the company that there were major governance issues, problems between CEO and Chair of the Board, resulting in paralysis in relation to decision making.

How do you deal with this type of potential problem?

This is actually a very difficult one. As a small scale investor it is pretty much impossible to find these things out. The likes of Buffett or industry journalists can very easily get access to senior managers and members of the board and interview them personally. But even then they may not pick up on internal issues.

Some things I would look at are:
- how long has the CEO been in place and is there a history of frequent changes in CEO
- the same question for the board of directors; frequent changes can be an indication of difficulties at management level

Unfortunately these things can happen, and the best you can hope for is that new management is put in place and that the overall business is not affected in the long term.