Sunday, September 10, 2023

Fidelity's Joel Tillinghast simple message - use checklists

The successful Fidelity manager, Joel Tillinghast, wrote a book a few years ago that did not get a lot of interest but has a lot of good information, Big Money Thinks Small: Biases Blind Spots, and Smarter Investing. Like many investment books today, it starts out focusing on the many behavioral biases that investors face. We know we are flawed investors, so what we really need is a rule of the road to be better. Tillinghast delivers through a few useful checklists which are valuable. 

The basic checklist: 

1. Does the stock have a high earnings yield - that is a low P/E? Buy companies which may show value.

2. Does the company do something unique that will allow it to earn super-profits on its growth opportunities? Does it have a moat?

3. Is the company built to last or is it at risk from competition, fads, obsolescence, or excessive debt?

4. Are the company's finances stable and predictable into the extend future, or are they cyclical, volatile, and uncertain?

Sounds boring. There is no secret except for following the rules. 

Another checklist, Tillinghast will not buy an asset unless it is:

1. Safe from rash decisions.

2. Safe from misunderstanding of facts.

3. Safe from foreseeable fiduciary misuse.

4. Safe from obsolescence, commoditization, and over leverage.

5. Safe when the future doesn't turn out as imagined. 

These rules should always serve as a good first pass for investing.  Even if I focus on quantitative investing, a good rules road map will always make investment decisions easier.

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