Growing Rich - Arabictrader.com

KIRK KAZANJIAN
research in anticipation of holding on for three to five years, like I
am, then getting to know management is very valuable.”
IT’S NOT HOW MUCH YOU MAKE, BUT HOW LITTLE
YOU LOSE
As you might have guessed, Davis’s first rule of making money is
having the sense not to lose it in the first place. “At the heart of my
approach to money management is my view about risk,” he emphasizes.
“I now ask, ‘How much can I lose?’ before I even dream about
‘How much can I make?’ Every decision is formed by my belief that
continuous risk management is the key to delivering superior longterm
investment results. For me there are two fundamental investment
risks. The first is what kind of businesses I own. The second is
whether I pay too much for a company’s stock. I evaluate risk on a
company-by-company basis. Experience has taught me that good
companies can prosper in lagging sectors, while badly managed
companies often perform poorly in sectors that are doing well.
“Before I invest a penny, I ask myself such questions as, ‘If I had
unlimited funds, would I want to own the whole company at the price
I am paying for this fractional interest? Or, can I make 50 percent
over a three-year period?’” he says. “More important, I also ask myself,
‘If this stock goes down by 15 to 20 percent, would I still want to
own it? And how much can I lose?’ These are very important questions
to ask when you’re trying to manage an all-weather portfolio that
you want to do well in both up and down markets.”
BE SELECTIVE
One way Don Yacktman and his team of analysts reduce risk is by
focusing their efforts on following only a select group of stocks, most
of which have reported earnings in excess of $100 million. “These
are financially strong companies,” he says. “This is a good starting
point for reducing risk. I liken companies on a solid financial foundation
to homeowners who have paid off their mortgages. When you
get into a comfortable situation like that, it’s pretty hard for creditors
to take anything away from you. You know that these companies
aren’t going to close down overnight because they have the money
to survive almost anything that comes their way.”
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