Liberty Posted April 25, 2014 Share Posted April 25, 2014 https://oddlotinvest.files.wordpress.com/2014/01/lou-simpson-1987-profile.pdf "One of the things I have learned over the years is how important management is in building or subtracting from value," Simpson said. "We will try to see a senior person and prefer to visit a company at their office, almost like kicking the tires. You can have all the written information in the world, but I think it is important to figure out how senior people in a company think." [...] According to Simpson, his investment principles are as follows: (a) Think Independently. "We try to be skeptical of conventional wisdom and try to avoid the waves of irrational behaviour and emotion that periodically engulf Wall Street. We don't ignore unpopular companies. On the contrary, such situations often present the greatest opportunities." (b) Invest in High-Return Businesses Run for the Shareholders. "Over the long run appreciation in share prices is most directly related to the return the company earns on its shareholders' investment. Cash flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick. "We ask the following questions in evaluating management: Does management have a substantial stake in the stock of the company? Is management straightforward in dealings with the owners? Is management willing to divest unprofitable operations? Does management use excess cash to repurchase shares? The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources." Pay only a reasonable price, even for an excellent business. "We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world's greatest business is not a good investment if the price is too high." Pay only a reasonable price, even for an excellent business. "We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world's greatest business is not a good investment if the price is too high." Link to comment Share on other sites More sharing options...
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