Mark summarises this interview with Michael Mauboussin and the three principles that have guided his analysis.
- He focused much more on cash flow than on earnings.
- He emphasized competitive strategy analysis and viewed this as vital for his valuation work.
- He tried to understand the expectations for financial performance that the stock prices implied. He believed that today the single biggest error in the investment business is a failure to distinguish between fundamentals and expectations. These are two different things.
On clicking through to the original interview I also discovered a list of three sources of investment ideas.
- Broad reading, including traditional business periodicals (e.g., The Wall Street Journal, Fortune, The Economist) as well as periodicals most investors don’t read (e.g., Nature, Scientific American). Books of all sorts are also very helpful. These sources often provide important context, idea sparks, and possible signals.
- What other great investors are doing. Find a list of investors you deeply respect, investors who operate with a similar philosophy and time horizon, and pay attention to their actions. Here, too, some good ideas can surface.
- Speaking with a limited group of investors. Discussing stocks all day with other investors is a bad idea because it severely impedes your ability to think independently. By the same token, bouncing ideas off a respected business friend or colleague can provide a good opportunity for feedback and constructive criticism.