How to do the investing right?

1. Do the number, Own the number

Let the number speak for itself. While conceptulizing an investment thesis is important, the ultimate investment success is determined by getting basic right. Never take management’s words for granted, even if he has the best caliber among all the managers. Understand companies at higher level and know companies intimately.

2. Be aware of downside risk

Before you buy, instead of asking how much you can make, first ask how much you can lose.

3. Cash flow/Balance sheet check

Balance sheet and cash flow statements can tell more about earnings quality. The more complex and convoluted the finanical statements get, especially for businesses that aren’t overly complicated, the more reason to worry.

4. Data lead to opinion, not the other way around

Whatever you hear or read, make sure that information is factually correct. For example, newspaper headline reads “gasoline demand slows down”. However, you can go to Valero website to check gasoline demand data. Even if some creditable institutions tell you one thing, the information might be taken out of context and therefore not factually accurate.

5. No non-sense talks

Never say anything that doesn’t make sense and never do anything accordingly. Chinese IPP industry is poised to be squeezed btw. high coal price and capped power prics. This is not going to change for the intermediate future. As a result, a levered name in this sector should be a good shorting candiate. Sentiment might swing at any given day in terms of speculation about government’s loosening of pricing control – however, common sense tells you it’s entirely impossible given the way Chinese government handles domestic economy issues.

6. Position size/hedging

Position size is a function of your conviction. Plan and size positions appropriately from start.

7. Attack shorts with equal vigor, tenacity and accountability

8. Trading

Reduce ill-conceived pruning; With appropriate conviction, respect positions in portfolios.

9. “Pam Pilot”

Strive to milk palm pilot. Plan each day ahead.



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