Summary…..
There is a reason why experience is so important in investing. You don’t want to make all the possible mistakes yourself in order to learn, which is why I am sharing mine with you. Keep the following in mind to help steer you away from trouble in investing:
· Be highly suspicious of companies that have free cash flow that is significantly below earnings for a long period of time. Unless the company is making verifiable investments likely to produce attractive returns, you are better off passing.
· Don’t believe what managements tell you they will do. Instead, rely on what they have done.
· Be wary of companies that are all story and no numbers. If the story is so great, shouldn’t there be plenty of numbers to back it up?
· Read financial statements carefully. No, it’s not always fun. But if you are going to be a serious investor and think that you are too busy to carefully read the footnotes, watch out. You might be setting yourself up for a big loss. If it turns out that you could have caught it by studying the financials carefully, you will have nobody but yourself to blame.
· The price of the investment always matters. I was so busy celebrating my good call to exit shares of OM Group at $70 before the collapse that I never seriously re-assessed the investment at the new price of $4. That was a mistake – the stock eventually went up 10x from those levels. Keep your mind flexible and keep re-evaluating investments as the circumstances and the prices change.