Systems

What to buy

Any extreme sectors

Sector
Any market, global market (small cap)
Commodity sector
All or part of a business that he understands – and that meets his criteria.
Assets that will change in price if his hypothesis is valid

When to buy it

When extreme happens

Deploy capital before market move
When market is very pessimistic
Anytime before long term trend established
When the price is right
At the right time – which he determines by testing his hypothesis

What price to pay

Basket approach to give better average
?
?
Current price
A price that gives him a margin of safety(i.e., a discount to the business’s estimated value)
The current price
How to buy it
Two times leverage
?
?
?
Pay cash
Futures, forward, contracts, margin, with borrowed money
How much to buy as a percentage of portfolio
As much as I can with 2 time leverage and always leave some cash to take extreme bargain.
?
?

As much as he can. Limits: How much cash he has available, how much stock is on the market- and for how long it’s available at the right price
As much as he can. Limits: rarely exceeds 50% margin (on a total portfolio basis,)

Monitoring progress of investments

Review monthly

Sit tight to get big profit
?
Long term hold (17 yrs)
Does the business still meet his criteria?
Is the hypothesis still valid? Is it progressing as expected? Has it run its course?
When to sell

Based on target price range

?
Based on PE ratio
When the long cycle is over
Stock: when the business no longer meets his criteria. Wholly-owned business: When it’s “broken and we can’t fix it”
When hypotheses has run its course or is no longer valid
Portfolio structure and leverage
2 times leverage
?
?
?
No target structure. Leverage only though insurance float, or borrowing when interest rates are low.
The basic is stocks, fully owned, which becomes security for leverage.

Search strategy

All sectors
Primary trend
Globally
No search, 17 year cycle
Read lots of annual reports; answers the phone.
Monitors political, economics, industry, currency, interest rate and other trends. Looks for linkage s between disparate, unfolding events.

Protection against systematic stocks such as market crashes

?
?
?

Only buys quality businesses he understands at a price that gives him a substantial margin of safety. Buffet-style businesses often expand market share when their competitors are in trouble, so becoming more profitable in the long run.
Judicious use of leverage
Beats a hasty retreat.

Handling mistakes

Avoid mistake
Keep rules




Gets out (stock market investment)
Admits, accepts, and analyzes mistakes to avoid repeating them. Also considers “sins of omission” mistakes.
Get the hell out

Has a detailed strategy for analyzing mistakes so he doesn’t make the same mistake again.
What to do when the system doesn’t work
Continually reviews system to see if it can be improved.

Out of market



Stops;
Seeks flaw in method ( e.g. adopting Fisher’s method) . Continually reviews system to see if it can be improved.
Stops
Continually reviews system to see if it can be improved.