Finance Only discussion

My favorite investment books led me to two categorizations (i.e. strategies) of companies. “Good and Not Good.”

“Good” companies may have durable competitive advantages and holding an investment for years may benefit from compounding.

“Not Good” companies seem unlikely to have durable competitive advantages and thus I only see them as mean reversion candidates for investment. In those cases, time is your enemy (i.e. meaningful compounding is less likely) so buying at a certain discount to intrinsic value, then selling at higher prices, repeating the process, and being indifferent to holding period is the route I take.

The The Little Book That Beats the Market was most influential in developing my “Good” company strategy. It attempts to pinpoint the cross-section of the relatively cheapest AND highest quality companies. If you follow the strategy exactly, it is mechanical and unemotional and requires zero research because a companion website provides the list of stocks to buy. I use a modified version that better fits my goals. The The Little Book That Builds Wealth: The Knockout Formula for Finding Great Investments similarly attempts to help identify companies with competitive advantages.

My “Not Good” strategy was influenced by The Net Current Asset Value Approach To Stock Investing and Quantitative Value: A Practitioner's Guide to Automating Intelligent Investment and Eliminating Behavioral Errors. These books led me to conclude that mean reversion is the most important aspect of value investing and therefore I don’t just look for the best companies. My primary goal is finding the relatively cheapest, even if they are “Not Good”.

example of valuing a company in the "good" strategy the books above helped me devise:
https://www.veriteventures.com/post/k...

C.H. Robinson Worldwide (NASD:CHRW) fair value estimate using the "good" strategy the books above helped me devise:
https://www.veriteventures.com/post/c...

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