"the great belief is that more information is always better. The problem is that it ignores the fact that the human brain is a limited processing device. We're not a crazed supercomputer that can handle bytes and bytes of information simultaneously. If you give people more information they actually make worse decisions. So it's far better to be focused on what matters rather than trying to collect all this information which doesn't really improve your performance at all."
Here are the three things Montier recommends an investor think about when making an investment decision:
1) Is the stock cheap? "If it is, it's a potential investment. If its not, forget about it there and then".
2) What does the balance sheet look like? A stock needs to be cheap for a reason. "You can't really analyse earnings without understanding the balance sheet behind those earnings. Yet I feel that a lot of professional analysts have very little grasp of it."
3) What is the management doing with the capital given to them? "Are they going to spend it on their pet projects or something useful."
I will blog this week about how these same rules can be applied to decisions regarding commercial real estate investments.
No comments:
Post a Comment