Welcome to Investing: Move by Move

When asked how he became so successful in investing, Buffett answered: “We read hundreds and hundreds of annual reports every year.”

When I was a teenager I liked to play chess, but no matter how many books I read, my level of play didn’t seem to improve. They were either for beginners, or too advanced for me to understand the concepts that would take me from beginner to intermediate, and then to advanced level. And then I found a book called “Logical Chess: Move by Move” by Irving Chernev. I had never seen or read anything like it. Instead of just writing down moves and annotating a few variants whenever a mistake was made, this book explained every single move in 33 master games of chess. It made me much more aware of the reasons why a certain move was good or bad, either tactically or positionally, and greatly improved my understanding of the game, helping me break through that plateau.

Hence, the name for this blog.

My name is Rui Rodrigues. I moved from Portugal to London almost two years ago looking for employment opportunities in the financial sector, since I love finance, financial markets, and am a huge fan of value investing and Warren Buffett, considered to be the most successful investor of all time. I have a degree in Business Management from a portuguese university, passed the CFA Level 1 Exam but failed the Level 2 Exam (more times than I care to admit), and I recently achieved the Investment Management Certificate (IMC). My career has been built mostly in sales and customer service, however.

Like most millennials, I’m still not in the property ladder and my retirement planning leaves much to be desired. Aside from some personal savings and my company’s pension savings plan, I have nothing else in place. Safe to say this will never be enough to provide me with a comfortable life when I’m old, so I knew that decisive action was necessary. Better late than never, so…

A couple of months ago I won an equity trading challenge with a performance of 45% in one month, and the prize was a £2000 travel voucher, which I sold with a little discount. I decided to put some of that money into an Investment ISA (Individual Savings Account, for those of you who don’t live in the UK) and start investing in shares without paying capital gains tax or dividend tax (huge advantage over people who live in countries that don’t have something like this!). I have tried trading forex and CFD’s in the past (not with much success) but like to think that I have become wiser since then, hopefully.

I want to invest using Warren Buffett’s and Benjamin Graham’s principles and buy good companies when they are trading at a discount to their intrinsic value. The question is: how do we determine that value? As the quote at the beginning of this article suggests, we start by reading annual reports.

The purpose of this blog is for me to record my journey and share with you every move I make when investing (or when deciding not to invest, which will probably happen most of the time) by analyzing every annual report I read, as well as the best books I like about this subject, so that you learn from my experience (and probable mistakes). I hope I can help you prepare for your retirement, or improve your financial situation, or simply improve your knowledge about personal finance and investing, and add value to your life. Also, it would not hurt if I could make some extra income from this blog (although, at this time, I have no idea how that might happen) so I can put a bit more money towards my retirement (and buy a house and start a family, eventually…).

Warren Buffett says that he has three trays where he puts reports after reading them: Yes (companies that he would invest in); No (companies that he doesn’t like); Too Hard (companies that are outside his circle of competence and that he feels he can’t analyse competently). I propose to do the same with every annual report I read. And if one ends up on the Yes tray, I will start researching the company and try to value it. When the value of the company is greater than the price for what it is selling in the stock market, we have a margin of safety (aka discount), and it might be the right time to invest.

Now the question is: where to start?

3 thoughts on “Welcome to Investing: Move by Move

  1. Best to start with a good screen. Buffett prizes free cash flow, so I would do a screen for businesses with low price to free cash flow. Less than 15 would be ‘cheap’. He also likes high ROE, so you want a good ROE, probably 20% or more. He also hates debt, so you should screen for businesses with a low debt to equity (say, less than 100%). That would probably give you a good list of stocks to start reading annual reports of and thinking about their ‘moat’ or competitive advantage. If you’re interested in Buffett’s methods, a good book to read is ‘Buffettology’.

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  2. A good explanation of Buffett’s methods is ‘Buffettology’. If you want a good Buffett screen, there are a few on AAII worth checking out. That is a good starting point to do some research.

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    1. Thank you for your comments and book suggestion, valuestockgeek. I’ve just added AAII to my browser favourites, and have already read ‘Buffettology’ (I agree it’s a good introduction to Buffett). To go a bit deeper into his methods, I would also recommend ‘The Warren Buffett Way’, which includes the author’s twelve tenets about what Warren looks for in a company, as well as several case studies on some of his investments (I’ll probably write a book review later on).

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