Reading: The 400% Man

Link is here: The 400% Man

Over a 12-year stretch, through the end of year 2011, Allan Mecham, now a mere 34 years old, has earned an astounding cumulative return of more than 400 percent by investing in the US companies.  Reading through the article, what Allan Mecham does is what a disciplined value investor should do when he or she is in the market.  The summary in the article is kind of guideline for value investor:-

• Ignore the economy. The idea to ignore the economy scared me at the first glance.  For me, before analyzing a stock, the first step is to see the economy which determines whether I should step in the market or not.  To totally ignore the economy is like a blind man feels the elephant. However, in this article, this sentence touched me: to “look for stable, defensive businesses that can thrive whenever bad times come.” This single statement makes the whole sense.

• Don't diversify. Most mutual funds own dozens or even hundreds of stocks (regulations usually require them to own at least 15). I totally agree with this point. One of the main reasons of diversifying is, in the positive term, not to put all the eggs in one basket, while in the true but negative term, to avoid thorough study for each of the stocks.  I am determined to maintain my portfolio within 10 stocks.

• Don't sweat the spreadsheets. Although I do think spreadsheet analysis is essential. But “it's more productive to use that time trying to understand a company and its industry -- the management, the competition, and the customers and so on.”

• Think decades, not quarters. “Shareholders and managers tend to focus on companies' announcements of quarterly or annual earnings, and whether they beat or miss analysts' estimates. But some managers -- including one Warren Buffett -- say it's more useful to try to figure out where a company will be in a decade or more.”  The confidence of long-term thinking is based on the true understanding of the company and business, which needs much dirty work.

• Don't just do something. Stand there! “One of the toughest things for investors to do is to sit still and do nothing -- especially when nervous clients demand that they respond to short-term fluctuations in the market. But most of the time, say a few contrarians, inactivity is the right longer-term move. It's about "keeping emotions from corroding the decision process," says Mecham.”