Category: Basic of Investing: Seeing Right

The reason why we make basic investing articles is due to our decision-making bias.

Our decision-making weighed heavily on the first impression. Attractive politicians often win the election. Surprisingly, even we are far away from the evolutionary phase, we still fall into the physiognomist. We believe that person’s character is reflected in his face: Henry Cavill for Man of Steel and RDJ for Tony Stark.

Problem is, our first impression about anything is often wrong – including investing. When we see a girl with sexy cleavage, we assume that she is flirting. When we read the term “fundamental analysis”, we simply think about financial series. When we read margin of safety, we assume it is about buying undervalued stock. When we see dividend investing, we say that it is about investing in stock with a high dividend yield.

Actually, they aren’t.

From our first years of investing till today, almost no investment resources cover and fix these kinds of misconceptions. We believe such misunderstanding will prevent investors from the optimal outcomes.

This circumstance is like looking at an object through the dirty – old – blurred glass. You can’t make the best decision before you set the glass clean.

Article in this category provides a cleaning kit. We scroll to the bottom of investing building block, finding the misconceptions, and present the right ideas for the reader. We try to change your first impression about some of investing concepts. Once you get the proper insight, you are one step closer to the valuation.

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Return on Equity: How the number could lie to you

How to make your Return on Equity looks high?
Return on Equity does not tell you a whole story. source: Pinterest

In the Full Year of 2020, Altria Group recorded a 98% Return on Equity – way far exceeding the index with 17.17%. In 2021, the achievement is much crazier, the Marlboro maker has a 399% Return on Equity. And it is not a seasonal wonder, Altria has consistently maintained a high level of ROE for a long time. Is its business really that good? Our short post tries to investigate further.

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Decision-Making: Investing, Business, Career, Life

One of problem in decision making is how the decision taken disconnect with the things we know we should do.
Same mistakes. How could?

Why is decision-making important?
Because sometimes it involves money. A lot of.

Decision-making is essential when it involves money. In 2010, Nokia stubbornly decided to use Symbian while all developers join iOS and Android. In 2017, Microsoft adopted a similar approach to challenge the duopoly. The Redmond-based company embedded Windows Phone in its Lumia lineup instead of Android. As you’ve already known, this decision lead to billion of losses.

Microsoft knows that the lack of developer support is the reason why Nokia – Symbian failed. Why did the tech giant still take that approach? It is interesting that under specific situations, people tend to take completely known wrong decisions. And it is not only about corporations. It could also happen at the individual level.

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Example of The Decision-Making Fallacy: From OS to Football

Some example of the decision making fallacy teach you that ineffective decision bring you unwanted outcome
Decision-making is vital in every aspect of life
Image by vectorjuice freepik

This example of the decision-making fallacy gives us a simple conclusion: do not let your former glory ruin your future. Everything will change eventually, we need to adapt.

  1. After the acquisition of Nokia, Microsoft keeps the Windows (Phone version) as its mobile devices OS. This strategy ends miserably with a $7 billion loss.
  2. Lionel Messi – maybe the greatest player of all time – relies on his dribbling skill. As the player ages, the sharpness of his play deteriorates significantly.
  3. Cristiano Ronaldo – Messi’s greatest rival – begins his career as a dribbler, with many tricks, flips flop. But as he ages, he changes his play style. CR7 becomes more passive, waits in the penalty box, and becomes one of the deadliest poachers. He does not dribble much. He becomes much more efficient. His physical peak has been long surpassed, but he keeps delivering prestigious titles for the club and national team.

What do we learn about decision-making here? Let’s elaborate.

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Fundamental Analysis of Berkshire Hathaway: Misconception

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Key points of Fundamental Analysis of Berkshire Hathaway(BRK):

  1. Officially, Berkshire Hathaway is transportation, energy, and an insurance company.
  2. Due to its area coverage and economies of scale, Berkshire’s transportation business enjoys a cost advantage over its competitors.
  3. Berkshire’s insurance enjoys a switching cost advantage.
  4. Berkshire’s business is durable, and reliable in the long run, but it is slow. What makes Berkshire’s price rise is probably due to its stock investment and buyback.

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Basic Investing Strategy: How to Win The Game

A basic investing strategy is about durability.
Investing is about keep walking, not sprinting, and quit
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Too Long Didn’t Read: for Basic Investing Strategy:

  1. In the long run, earnings and cash flow matter most.
  2. An economic moat – or technically, competitive advantage, is a factor that could preserve (or even grow) earnings and cash flow.
  3. Time plays an important role, a high number of ROIC is useless if it can’t last in the long run. Time becomes the test for ROIC.
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Understanding of The Stock Market: Misconception

Understanding of the Stock Market begins with set the misconception right.
Fix the investing misconception

How long have you been in the game? 5 years? In the last 3 years, how much have you advanced? This is not only your question but also ours. How long have you been with us? 2 years? How much do you get better by coming to us? Here we’re now making a recap of our article. To remind you what is important, to give you a checkpoint, and to know how our progress in the understanding of the stock market.

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Marry Buffett’s Book: Part One. Gross profit Margin.

Marry Buffett's Book says that companies with a high Gross Profit Margin mean has a durable competitive advantage. But in our opinion, it doesn't mean that company with a low GPM always has no durable competitive advantage.
Is there no place for Company with a low GPM number?
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The complete title of Marry Buffett’s book is Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage. The title contains our favorite subject: Competitive Advantage, one of the most important but rarest topics in investing.

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Investing Rule Misunderstandings: Birdless Bush

One most used term for trader’s defense
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So far, we have tried to fix some investing rule misunderstandings. We have redefined and explained many investing terms like intrinsic value, the margin of safety, growth versus value, and others. Today we try to target one of the most used quotes in the stock market: “One bird in the hand is better than two birds in the bush”.

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