While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.
Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: How many legs does a dog have, if you call a tail a leg? The answer: Four, because calling a tail a leg doesn't make it a leg.
The gross profits in many workouts appear quite small. It's a little like looking for parking meters with some time left on them. However, the predictability coupled with a short holding period produces quite decent average annual rates of return after allowance for the occasional substantial loss.
You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.
The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.
Wild swings in share prices have more to do with the "lemming- like" behaviour of institutional investors than with the aggregate returns of the company they own.
You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share!! I tried to buy up as much of it as possible. No one will tell you about these businesses. You have to find them.
It's going to be tough because the economy is going to be getting worse for a while. And it might fall off a cliff if this doesn't pass. But nobody will ever know that if it does.
As an investor with small capital, one should prefer businesses that have high returns on capital and that require little incremental investment to grow.
We say we are trying to buy into businesses with excellent economics, run by honest and able people at a decent price. We buy very few securities, so we look at it as "focused" investing.