Today at a Glance:
Lesson From the Book: The Expanding Pizza Slices
Tweet: Equity is a very forgiving asset class
Quote from Robert Hagstrom
Snippets: 4 Snippets from different books
HUNTING GROUND #: THE EXPANDING PIZZA SLICES
some of these companies repurchase shares from time to time, such that the number of shares outstanding falls over time. It’s like sharing a pizza with fewer people. Suddenly, everybody’s slice is a little bigger.
The key caveat here is simply that for this to work, the company’s stock price should be cheap. You don’t want management wasting shareholder money buying back its own shares if they are too pricey.
James Montier’s Global Equity Strategy report for November 2006, published by the investment bank Dresdner Kleinwort. He was citing a paper by Bali, Demirtas, and Hovakimian titled “ Corporate Financing Activities and Contrarian Investment. ”
Basically, they found that you can beat the market solidly with a simple value strategy: Buy the cheapest 20 percent (by price-to-book ratio) of the market whose shares outstanding are also falling. According to Bali et al., this would have given you a 5.5 percent edge per annum over the years they studied (1972 to 2002)
(Not a Buying Advice )
Full Issue -
One Tweet
One Quote
“To be a successful investor, you need not spend four years studying sociology, but even a few courses in this discipline would increase the awareness of how various systems organize, operate, thrive, fail, and then reorganize.”
-Robert Hagstrom
Interesting Books Snippets/tweets shared during the Week
1. "If Fed Chairman were to whisper to me what his monetary policy was going to be over the next two years, It wouldn't change one thing I do" - Warren Buffett (Book)
2. Buffett's exceptional results from an idiosyncratic approach in 3 Critical and interrelated areas: Capital Generation Capital Allocation Management of operations (Book)
3. Martin Whitman describes four ways in which companies create value or wealth (Book)
4. The Promote's Integrity (Book)
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Thanks for reading.
See you again next week.
- Dhaval (Investment Books)
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Great insights, as always! Keep up the fabulous work!!