Chapter 4 - Buy and Sell Disciplines Flashcards
Kobrick always checked for these three things before buying….
1) Compelling Valuations
2) High earnings growth
3) Management that can execute
*** Need all three criteria to buy ***
Kobrick sold if any one of these three criteria were met:
1) Target price reached
2) Change in management or strategy
3) Failure to execute
What creates the best investments for true wealth?
The combination of
1) Great companies
2) Great management
3) Great business plans
p84
Does Kobrik use just one method to value a business?
No, he doesn’t. He uses PE ratios, PB ratios, PSR ratios, PEG ratios.
Market timing simply _____ ______ _____.
Market timing simply does not work.
p85
How does Kobrick determine a target price?
He “triangulates” a value, usually using several tools: PE ratio, PEG ratio, market capitalization to sales. He compares these ratios to those for similar companies and with the subject’s own recent history!
p88
Is it ok to leave some money on the table?
Yes, it is.
“Giving up the absolute top is all right. It is not easy to do without any disciplines, and it is not the easiest thing in the world even if you do have disciplines…. You cannot pick exact tops and bottoms.” p88
What did Kobrick learn from his experience with Digital Equipment Corporation (DEC)?
Lessons
1) Watch for management changes. These can bode ill for the company. Good mgt, marketing, tech people left DEC and subsequently price crashed.
2) Need to go through BASM + 7 Steps each and every time. When DEC crashed, Kobrick was tempted to buy again, but ultimately didn’t because good management had left. Going through BASM + 7 Steps saved him. p93
The degree of one’s emotion varies _____ with one’s knowledge of the facts–the less you know the hotter you get.
The degree of one’s emotion varies inversely with one’s knowledge of the facts–the less you know the hotter you get. –Bertrand Russell
What does a good business plan do?
A good business plan tells a story about how a company intends to make money, grow, and protect itself against competition. p96
What is the FUD factor?
When stocks plunge, Fear, Uncertainty and Doubt arise. That’s the FUD factor. p97
How did Kobrick triple his money on Disney?
Kobrik KNEW that Disney’s business was good. Theme parks, movies and entertainment were strong. Corporate raider had threatened to take over the company years before. New management was in place. Eisner started enhancing shareholder value. When market crashed in 1987, Disney crashed from $20 to $11. Kobrick loaded up. Within 24 months, DIS was over $32.
In other words, he loaded up on a strong business that was temporarily dragged down by the market.
What should you do after you sell a stock?
Keep track of them. Companies can “become okay” and have the potential to be great again. Kobrick kept a spiral notebook and made notes all the time about the stocks he sold. p100
Both Intel and National Semiconductor crashed in 1987. Which one did Kobrick buy and why?
Kobrick bought Intel because it was focused and its products were gaining market share. National Semiconductor was not focused and had just acquired Fairchild Semiconductor in 1987. Intel won and National Semiconductor flamed out afterwards.
What has cost investors more money than perhaps anything else?
Guessing what the economy will do.
Don’t try to predict what the economy will do. Instead, focus on individual businesses and their fundamentals. p107
