If there is one statement which is repeated a number of times by Walter, it is, “I don’t like to loose money.” I think that was the most used statement by Walter in the recording.
He seems to have very simple rules for investing:
1. Low Debt
2. Good History
5. Investor Characteristics
Let me try and explain each of these as I have understood them.
Walter preferred to buy companies with low or no debt. Debt can definitely work as a great leverage for quite a few businesses, however, it can get companies into a lot of trouble. So when you the investor have a choice, between two identical companies, it’s a no-brainer to pick the low or no debt company.
The 2nd Characteristic which Walter looked for is companies with a long history of being successful in business. He mentions looking at a company history over a period of 20 years. A business which has done well over long periods of time, has been through a huge number of up’s and downs and so the probability is that it’s capable of being around for a long time. Now History alone is not a definite indicator of future success, hence when looking at what Walter is saying one has to really look at all the parameters in combination.
Walter preferred stocks selling below Book Value.Stocks with Book Value considerably larger than selling price were extremely attractive to him. He also mentioned when asked about buying a good company at a fair price
“I don’t think I want to buy good companies at a fair price”, I want to make a profit and hence I want a discount. However, companies trading at prices far below book value could be takeover targets and here’s where the next principle comes in.
Walter has two thoughts about management, he wants Management to have a large stake in the business. The reasoning is simple. If they have a large stake in the business the investor needn’t be overtly bothered even if the price goes down further, as Management would ensure that the price is correctly reflecting reality.
Management wants to be a success too, especially when they have a large stake in the business.
On another thread, Walter mentioned he doesn’t like interacting with Management as he couldn’t judge people well. People might appear to be charming, good people, however, judging them and knowing their true character eluded him. So he preferred to simply look at the numbers. He preferred reading the annual reports than interacting with top management.
5. Investor Characteristics
Be able to keep your emotions out of the picture. Look at things logically as they are, not as you think they may be at a later date.
E.g. The electric car, is a good idea however, when would there be a successful implementation of the car, is anybody’s guess. Today’s reality is something else and the future is uncertain, don’t let your emotions drive you.
Be willing to make mistakes however, not loose money -If the prior statement seems like a conundrum, here goes. Lets say you’ve just sold a stock and the price runs up another 25% don’t bother wasting time thinking what a fool you’ve been. Similarly if the price drops after you’ve purchased, you should be feeling happy to get an opportunity to get in cheaper. This would happen only if in the first place you’re extremely clear on what you’re getting into.
The most interesting thing which I found Walter say was that different pople do things differently, some may be good judges of character, he gives the example of Warren Buffet, what he’s basically saying is there is more than one way to successfully invest. The other thing he talked about was in response to recessions, he didn’t really care about what the general economy was doing, he cared to know how the business is doing, and in getting it at a good price.
There are many more nuggets in the interview, and I’d encourage you to check it out, I’ve scratched the surface.