Simplistically: What are the chances that we lose money over a 5 year holding period, even in a weak economy? If we believe the chances of losing money are very very low, we will consider investing. This is our starting point.
Private Eye does not speculate. We have absolutely no idea where the stocks we own and discuss on this site will trade over the next hour, day, week, month, quarter, year, etc. We invest as partial owners of a business/collection of assets and plan to hold our investments for 5+ years.
Said differently: Investing is taking money that you’ve worked a long time to earn, that you will not need for AT LEAST 5 years and using it to safely compound your capital over time.
If you are unable or unwilling to hold an investment for 5 years, the stocks discussed here are simply not for you. In order to potentially benefit from the stocks discussed on this site, an investor needs Patience (more on this below).
We focus on downside protection by looking at:
-The balance sheet/capital structure (debt, debt structure, debt terms, and liquidity) and current financing options.
-The predictability of the cash flows generated by the assets/business. Does the business/asset face significant competitive hurdles. How cyclical are the cash flows? Does the business/asset need capital or generate capital?
-The price paid/ valuation of the business or assets. Even the best business/collection of assets can be a terrible investment at the wrong price.
I invest only when, on a fundamental basis, I believe there is almost no chance of losing money over a five year time horizon.
Regarding price paid: There seems to be quite a bit of this 'pay whatever price' going on today. It is exacerbated by the ETFization of the market (ETFs don't 'think' about price -they just buy shares). WOULD YOUR EVER JUST WALK INTO A DEALERSHIP AND SAY I'LL TAKE 3 CARS -not really knowing what you paid for any of them (and not knowing much about the cars/how much of each you owned). This is what people are doing when buying ETFs. We'll put together a more coherent analogy as I'll have plenty more to say on this later. Until then...Patience