Seth Klarman :

Top three principles of Value investing:
  - Think of Risk first before return.
  - Think of absolute return instead of relative performance to index.
  - Follow bottom up approach instead of top down.



Goal : To make money all the time, protect capital in downside and do well in the upside.



- Look for the Mispriced situation:
       - stocks dropped out of S&P500 index
       - investment rating has changed for a bond from investment to worse.
       - upcoming S&P500 stocks which is 501
       - rating for bond chances to invest
       - corporate spin off due to some issue or parent company looking to get rid of people.
       - Acquisition
       - Mispriced situation with catalyst.

- Look for a range of values in a company.

      - P/E
      - Book Value
      - Working capital
      - Cash value / Per share

- Model the every possible worse situation before investment in stocks
     - in case of auto loan, 2,8,40 % auto loan loss rate
     - 40% cars sitting in dealers home

- Find out who is selling stocks
    - Be careful,
               - if management is selling stocks.
               - if people like Steve Mandel /warren buffet is selling.

- Buy from people who don't know what they are doing.
              - Some situation  people just want to sell so buy in such kind of investment.
              - Corporate spin off natural many seller but not buyer.

-Sell soon / Buy soon.

      - If intrinsic value  is too close. Don't wait for the last moment and greedy. (Before quarterly result).

- Collaborate and corporate for investment ideas since not all ideas are best all times.

- Always keep more weapons in arsenal to take advantage of mispriced situation.
       - Look for situation in bond.
       - Corporate debt
       - Mortgage based security
       - Can own building in real estate
       - Can own loan on building
       - CD/CLO/

- Identify an edge to outperform.
    - Longest edge is long term.
    - Expertise than any other crowd.


- Bad Management

   - Hiring Brother-in-law or relative
   - Taking advantage with free stock and options
   - Poorly capital allocation.
   - Paying overly to themselves.
   - Leveraging too much
   - Only think themselves first.

- Good Management

   - Buy stocks when undervalued.
   - Using stocks as currency.
   - Good capital allocation.
   - Using leveraging diligently.
   - Community/shareholder interest



      
  




 

Four Valuation method
=================

1. net-net working capital method,
2. DCF method,
3. Four filters investment process,
4. Two-Column Valuation Method.

Read more: http://www.nasdaq.com/article/warren-buffetts-twocolumn-valuation-method-cm247095#ixzz4hI7y7ITP

 4 Criteria to choose stock based on warren way.
=================================
1. Understand the business
2. Enduring the competitive advantages
3. Able to trust management
4. Margin of safety.




Main Criteria to choose the stock
========================

Performance 

1. Company performance in the last 5 years.
2. Investment return %
3. Debt Management
4. Return on working capital
5. Return on Asset
6. Return on Equity


Balance sheet

1. Cash holding
2. Rate of growth.
3.Asset Growth
4. Cash generation capability.


Management 
Who owns the company.
Is management honest/ accept mistakes ?
Is management do what they promise ?

 
Competition-Moat.
How competitive is the company.
New product /services



Stock Valuation in Market

Is it cheaper or Expensive.



Brand Value
Is it brand /quality value ?

Multiple source of Income in company
Does it has multiple source of revenue or single revenue  ?


Baseline from industry.
Get a baseline of good and successful company and compare with other companies to evaluate the ratio.

Cause to grow/generate income.
Look for the upcoming investment/events which can generate more revenue.

History Similar Events 
Look for history events /solution for bankruptcy/restructuring/Debt/interest hikes.


Types of stocks

1) Values : 
2) Cyclicals :
3)Turnaround :
4) Price arbitrage :


Causes of selling :

1) small portion of profit
2) frustration 
3) sell one stock to buy another.
4) Characteristic change in company.