OK, stream of consciousness time - a quick rundown of some of the things I believe when it comes to stock selection:
Valuation and mean reversion are two of the most powerful forces in finance.
Finding stocks worth buying is the easy part. Being patient and just holding them for potentially a very long time is the hard part.
The true value of a business is not next year's earnings times some random multiple. Value comes from its long-term stream of cash flows. Thus the value of a business changes fairly slowly over time, even if the stock price chnages very rapidly. Beware anybody whose "target price" changes frequently.
I always find it funny how analysts offer up such definitive arguments for a why a particular company, take IBM for example, will or will not benefit from some course of action or some industry trend or some exogenous event. If these analysts' insight was worth a damn, IBM would have hired them away by now. This limitation applies to my own analysis as well. I have no special insight into technology sector. I have no idea what the best course of action is for IBM at this point. However, what I can do is tell if a the management of a business like IBM is doing a good job, and if the stock price currently reflects that. I believe I can also rely on them to continue to perform as they have before, on average, and over the long-term the stock price will reflect that performance.
I believe in a 50% margin of safety before buying.
Currently, very few companies offer such a margin of safety.
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