Below are notes I've taken while reading the book. This is not a comprehensive summary but thoughts and ideas I've found valuable. I recommend reading these notes after you've read the book first to compare our thoughts. I can't stop you if you don't want to so I guess you can use the below as an idea of what you may get out of the book yourself if you read it... though if it ain't clear it's cause you didn't listen to me. 

Part 1

Chapter 1:

Always remain flexible and think on capitalizing on the right times in the market

Chapter 2:

Scuttlebutt with vendors, customers, research scientists, university profs, government people, competitors

Chapter 3:

Think about industry tailwinds, they create the growth opportunity

"Fortunate because they were able" companies learned to "pivot" due to solid management allocating capital. As investors are we not also capital allocators? Like in Outsiders, many companies generated greater wealth for investors by having great capital allocators. I think this applies to top investors who are great because they are also great capital allocators as much as they are great analysts. You can find the best companies via analysis, but poor capital allocation can hinder such performance

Outstanding management continues to be an important factor in industries that are subject to technological change. management that is alert to the change and how they handle the matter is reflective of their competence

Find the LT catalyst - Like Jim Rogers does. Find the LT fundamental theme and invest around it, Idea of tailwind again

Look for segments to see which one is more profitable. Overall profit margins may be weak but if you look at the different segments it my show indicators of improvement

When looking at a stock universe.. maybe look @ the glassdoor ranking and consolidate that PM, ROIC etc.. Maybe also look for companies with low ROIC in CAPIQ but is actually a diamond in the ruff. - thoughts from identifying personnel relations in company

"Management will bring outsiders into anything other than starting jobs only if there is no possibility of finding anyone within the organization who can be promoted to the position"

"Young growth stock offer by far the greatest possibility of gain"

So, when finding these growth companies, it may make sense to ignore ... or not rely too much on the financial metrics because you want them to be focused on growing. Companies focused on growing may not show the nice fundamentals because the moat activity may be hidden, and you can't find it without doing serious digging

Remember - you aren't looking for some mediocre 60% return. you want to find a multi-bagger. That is how you win. You find a wealth creator that can become a multibagger because we buy it at the right price and because of its growth potential

Chapter 6

Selling at the top is still trying to predict when the "top" is. You don't know!

it's like applying the "drift performance" theory by JA. Letting the winners ride along had the best outperformance. Understand that you can be totally wrong on valuation and that you don't know. If it rides up don't trim it and let it become overweight.

"Don't disturb a position that is going to be worth a great deal more later"

Element of Noah's Ark. you have a duopoly. A has achieved 30% of ROIC and 30% operating margins. B is half of that. but they are duopoly. So, you factor in that as a possibility for B. No. That doesn't work like that. It's not apple to apple. They are in fundamentally different scenarios.

"If the job has been correctly done when a common stock is purchased, the time to sell it is - almost never" --> natural selection in portfolio

Chapter 7

What are everyone's perspective on dividends?

Chapter 8

How about companies you think people will miss + notice if they no longer existed? --> something ingrained into the lines of people

"The fallacy in their reasoning lies in the assumption that 5 years from now XYZ will be selling on the same PE ratio as will the avg Dow Jones stock with which they compare it"

·      if the company continues to grow and double its earnings by the 5 years time it will be selling at an even higher PE ratio, not the same ratio it is selling at now. So, people think the PE is discounting future growth earnings... but you don't know... if it continues to grow then it may not be discounting future earnings but actually presenting a normal P/E ratio for the kind of company it is... because not all companies should have the same PE ratio. There will be premiums applied to better companies and that should be reflected.

·      Example for above: Swedish construction companies look cheap on PE... but consider the context of environment. construction companies have low P/E in the best of times.. they are actually better off being bought at high P/Es

High or low PE at face value is not as important as the underlying story. Why is it high now? Is it discounting future growth? then maybe bargain but it is accounting for historic unsustainable growth then it may be overvalued

Remember there is no rule saying stocks should be at a "X" level of PE

That is why valuation with a range is key. It is also why......... maybe he can look at a range via PE as well.... to fight the psychological bias

Like Einhorn says. You're not on a journey to find something cheap. You are looking for mispricing first. Then you see if the mispricing is wrong

Chapter 9

Thought on the overall chapter is why don't we use the drift theory from JA. and let the performance determine the weight instead of cutting the winner?

Are we not doing the clients a disfavour by putting in our own psychological biases when the back testing has proven we were wrong? We might be thinking we are doing risk management, but it could all just be human nonsense

"Usually a very long list of securities is not a sign of the brilliant investor, but of one who is unsure of himself" - I wonder what Peter Lynch would say to that

"He should take extreme care to own not the most, but the best" - So why not let the outstanding companies run out through natural selection?

Why do we trim? because everyone else probably trims. Why don't we let our portfolios run wild? because no one else does it. We are following the herd just like that. - it brings around the point that I actually do think we have an overconfidence that we are different from the other market participants. But I think certain things we do with our portfolio shows that we are not.

Contrasting the notion of "you can't time" the market with "you can't know the exact value of the stock". We accept the valuation critique, so we use a range. Why don't we also accept the timing and use a range. And try to understand the fundamentals impacting a certain industry

Remember that the market will move wit popular news. When they hear news of a high-flying CEO come into a company then they will overreact. If it is a nobody, then they will underreact. So, consider all these and base investing timing there as well

Chapter 10

Fisher's Method of finding stocks - Talk to people in his circle of acquaintances for ideas - 13Fs, Pabrai's cloner effect

^ considers that one must have humility to be able to admit there are smarter people who would've found great ideas.

"What is necessary is to get the right answer a large proportion of the very small number of times actual purchases are made"

Part 2

Chapter 3

There is no set ROIC that is ultimate. Differences in time and impacts of industry and certain distortions of when companies make expenditures can distort the ROIC. It's also like considering each company has a different WACC, so the hurdles are all different. a 7% ROIC business could be fantastic if it's sustainable hurdle is only a couple percent. It tends to be relative and not absolute.

·      Charlie Munger does say that over time the business will provide a return close to its return on invested capital. but I think he wasn't speaking in strict absolute terms

PM = safety of investment, ROIC = profitability of investment

Thus PM + ROIC is important

Business models:
1) business has subscription like model that makes it uneconomical for a competitor to displace them
2) business must have reputation of quality + reliability = brand factor
3) quality aspect is amplified in business where an error in quality can cause major harm and inconvenience to customers (i.e. transdigm, kerry)
4) competitors are serving market only in a minor segment of market, in essence a monopoly, so business is unanimously the defacto supplier in market mind
5) cost of product is small part of total cost of operations

Business with PM consistently 2-3% of sales greater than that of the next best competitor is sufficient to ensure quite outstanding investment = Thought is now around that the difference doesn't have to be large. People think large PM difference is better but that means more competition can come in.. slight difference may signal a barrier

"if the fundamentals are genuinely strong, these companies will in time increase earnings not only enough to justify present prices but to justify considerably higher prices" ~ works for our A2s

"those who sell such stocks to wait for a more suitable time to buy back these same shares seldom attain their objective" ~ human psychology on it is harder to buy something after you sell and it goes up in price, even if the fundamentals may have changed

Chapter 5

Price of stock is blend of: 1) attractiveness of common stock as a whole 2) attractiveness of the industry company is in 3) attractiveness of the company itself

"Conservative investor must be aware of the nature of the current financial-community appraisal of any industry in which he is interested"

·      it is a way of timing the trend - understanding the market behaviour is important. Step back from the analysis to see the play around the industry to see if there is a tailwind or if it is favourable for mispricing

Chapter 6

"Investor can best determine which stocks are importantly undervalued or overvalued by a shrewd determination of the degree to which the real facts concerning any particular company present an investment situation significantly better or significantly worse than that painted by the current financial image of that company" - > market overreacts, then you know it is under the radar of the people.

"The further into the future profits will continue to grow, the higher the PE ratio an investor can afford to pay" - don't be afraid of the high PE, only if the growth makes no sense

"In downward markets, a change for the worse in the financial community's image of a company gets accepted far more quickly than a change for the better. Just the opposite is true in rising markets" -> Momentum of the tide going out

Part 3

Chapter 2

3-year minimum hold period

"Never promote someone who hasn't made some bad mistakes, because if you do, you are promoting someone who has never done anything" - Could be a management question on "what was the biggest mistake you made in operating and capital allocation"?

Fisher favours holding and not selling and trying to time and sell at a top. over time buying and holding works out. Unless the fundamentals are grossly impacted and no longer in line with the thesis then it shouldn't be sold