We always look at the margin of safety in the balance sheet and then worry about the business.
To my knowledge there are no good records that have been built by institutions run by committee. In almost all cases the great records are the product of individuals, perhaps working together, but always within a clearly defined framework. Their names are on the door and they are quite visible to the investing public. In reality outstanding records are made by dictators, hopefully benevolent, but nonetheless dictators.
The price earning multiple must be less than ten or the inverse of the long term corporate bond rate, whichever is the less.
I bought stuff at 3.5 cents once and I thought it can’t go down to zero. It can.
Long term debt and bank debt (including off-balance sheet financing must be judiciously employed. There must be room to expand the debt position if required.
We do liquidation analysis and liquidation analysis only.
I suspect that my thinking is an eclectic mix, not pure net-net because I couldn’t do it anyway so you have to have a new something to hang your hat on. But the framework stays the same.
They really can’t afford to be contrarians. A major investment house can’t afford to do research for five customers who won’t generate a lot of commissions.
In every analysis you need to isolate what the real assets are and you must not forget to examine the franchise to do business, to review the character and competence of the management and to estimate the outcome if the whole business had to be turned into cash.
