“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”
When investors hear Warren Buffett’s famous quote for the first time, most simply smile and agree that this advice is “obvious”. Mr. Buffett is simply saying that investors should only buy securities that go up in price, right?
Well, in reality, this is not the point of the rule. Value investors do not regard price fluctuations alone as equal to investment risk. Losing money in this context refers to the risk of a permanent impairment in the intrinsic value of an investment. Success or failure in investing depends on the degree to which an investor succeeds in identifying securities trading well below intrinsic value and has the financial and emotional ability to hold until the market recognizes the value.
Ideas: The Lifeblood of Investing
Warren Buffett is famous for having read through the entire Moody’s manual in the early 1950s. Today, the universe of securities is much larger and few investors have the stamina to persist in such a process. Many of us need an idea sourcing process that efficiently identifies attractive investment opportunities fitting our criteria. The Manual of Ideas, founded by John Mihaljevic, provides serious investors with publications that zero in on attractive investment opportunities using a proprietary research process that has succeeded in delivering a steady stream of ideas to readers.
I have been using The Manual of Ideas Downside Protection Report as part of my research process over the past six months and I can enthusiastically recommend this publication to readers of The Rational Walk (Disclosure: I am a contributing author on The Manual of Ideas Blog.) Downside Protection Report is published monthly and provides two ideas in each issue. The focus of each idea is to present an opportunity that has a significant margin of safety while also providing investors with the possibility of substantial returns.
Too Good To Be True?
Isn’t it only possible to seek substantial returns by taking on more risk? This simply is not the case as long as investors do not equate market volatility with risk. Most of the ideas presented in Downside Protection Report have balance sheets that present investors with a solid margin of safety. The Manual of Ideas research team seems to have a knack for finding hidden value that is not immediately obvious to readers of the balance sheet. In addition, the analysis carefully considers known problems that might be weighing on the stock price and evaluates the downside risk for known issues.
Downside Protection Report has provided actionable information that I have used on several occasions over the past six months. One example involves a developer and operator of commercial real estate that was under pressure due to well publicized problems at a subsidiary that obscured the intrinsic value of the core business. Another example identified a low cost producer of natural gas trading at a significant discount to intrinsic value with proven reserves that exceeded the company’s market capitalization even at depressed gas prices.
These are far from the only examples of successful ideas provided by Downside Protection Report. As a group, the monthly picks have far outpaced the S&P 500. Even though these selections are intended to be long term holdings, the initial performance delivered in a very challenging market environment cannot be ignored.
The Manual of Ideas offers a 30 day free trial for Downside Protection Report as well as a sample issue. In my opinion, value investors are making a mistake if they ignore this opportunity. I know that many investors are skeptical about the value provided by investment newsletters. It is never a good idea to make investment decisions solely on the basis of recommendations of a newsletter, even one that adheres to the high standards of Downside Protection Report. However, when these ideas are used as a starting point for further research and due diligence, it can be a great opportunity to boost investment returns while controlling risk.