“Never invest in a business you cannot understand.” Warren Buffett

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"First understand the business and then understand the stock" Mario Gabelli

"What I want to do is understand the business" Marty Whitman

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“If you understand the business, you ought to know what the business is worth. If you don’t understand the business then you probably wouldn’t know how to value it” Mohnish Pabrai

“If the estimation of intrinsic value is deemed substantially unreliable, there is simply no way to determine the extent to which the current market price affords a margin of safety” Frank Martin

“If you get into some complicated business, you can get a report that’s 1,000 pages thick and you can have Ph.D’s working on it. But it doesn’t mean anything. What you’ll have is a report. But you won’t have any better understanding of that business and what it’s going to look like in 10 or 15 years. The thing to do is avoid being wrong” Warren Buffett

“If we don’t know what something is worth, how can we possibly determine whether the price is cheap or expensive?” Frank Martin

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” Warren Buffett

“We like businesses that are simple to understand and simple to discuss” Larry Robbins

"First and foremost may sure they [you] really understand what the company does at a very simple level.  So, for example, who buys from the company, Why does a customer buy from the company? Why does a customer fire this company and buy from a competitor? and vice versa: Why do they fire a competitor and move on to buy from this company? If we took at a company like Hershey's Chocolate, you'd be able to answer that question easily.  If we took a company with complicated software or business processes or other things that maybe aren't clear to people in the field it is less obvious, right?  So, first and foremost, I think people need to have a very good basic understanding of why it is that the company exists and what customer base do they serve?  And what do they offer the customer base that their competiors don't? Trying to get to the concept of, what is this company's advantage?  And if you can't define very simply what this company's competitive advantage is, I think that's really a qualifying first step"  Ken Shubin Stein

"Fortunately, I never invested much money in things I didn't understand" Peter Lynch

"No one should ever buy a stock without knowing as much as possible about the company that issues it" J Paul Getty

"We focus on good businesses we understand because it makes everything easier" John Fox

“The advantage of low-tech stuff for us is that we think we understand it fairly well. The other stuff we don’t. And we’d rather deal with what we understand” Charlie Munger

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“We try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character” Warren Buffett

“I look for great companies in businesses I understand and which I believe have competitive advantages” Francois Rochon

“I will not abandon a previous approach whose logic I understand even though it may mean foregoing large and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital.” Warren Buffett

“First and foremost, we’re trying to understand the business”  Lee Ainslee

"The first thing, is it an easily understandable business"  Kevin Daly

"Investing is tough enough when you think you know something. When you have to start guessing, forget it." Bruce Berkowitz

“The most important thing in investing is to know what you’re invested in, and if your confident in the outcome it’s important to stay true to your position”  John Paulson

"We are seeking a level of Mastery in understanding the fundamental truths that enable a business to earn superior returns, with a healthy margin of safety over the longest duration possible"  Christopher Begg

"I need to get a general understanding of what a business does in a few minutes.  If I cannot generally grasp how it makes money and how it works in I would say the first 30 minutes, then in general I am wasting my time.  I may not understand all the intricate details but I should at a high level understand" Mohnish Pabrai

"I first try to understand if it's a good business.  Then, if I don't understand the business, can I do the work to understand it.  Those are the key things we think about first" Jeff Gramm

"I like businesses that I can understand. Let‘s start with that. That narrows it down by 90%. There are all types of things I don‘t understand, but fortunately, there is enough I do understand." Warren Buffett

"The source of a business' strength may not always be obvious.  Therefore, understanding that first leg of the stool, the business model, has its own level of difficulty.  It's also where the fun is, I might add, and we believe it is absolutely critical" Chuck Akre

"I think that in order to be a great investor, it's very helpful to understand business and how to run a business" Bill Ackman

"You have to be an expert in what you invest in.  You need to understand why you are invested.  If you don't understand why you are in a trade, you won't understand when it is the right time to sell, which means you will only sell when the price action scares you.  Most of the time when price action scares you, it is a buying opportunity, not a sell indicator"  Martin Taylor

"I like to stick to businesses we understand and for which there is an ongoing need.  If there is something you do not understand or are not comfortable with, in the no-thank-you pile it should go"  Chris Browne

"Investment must be rational; if you can't understand it, don't do it" Warren Buffett

"The further you stray from stocks you really understand, the more likely you are gambling rather than investing"  Ralph Wanger

"The key thing is when the stock goes from 10 to 6, if you understand what they do and you know they're financially solvent you're fine.  But if you don't understand it you'll probably going to do the wrong thing. You know if you understand exactly what they're doing it's gone 10 to six you'll buy more. If you're confused to start with you'll say well there must be something wrong here. And then you're out" Peter Lynch

"I would rather stay away from businesses that I don't understand.  When I say I don't understand I mean I do understand what a certain business does and how it makes money, but I don't understand what it will look like in the next five to ten years.  When I say that I understand a business I mean I have a reasonable fix on the earning power of the business in five or ten years - so I've got some notion on how the industry will evolve and where the company will sit in the industry in the future"  Warren Buffett

"Understand the nature of the companies you own and the specific reasons for holding the stock ("It is really going up!" doesn't count)" Peter Lynch

"I don't invest in things I don't understand.  If I don't understand something, I've learned to walk away"  Bruce Berkowitz

Article by Investment Master Class


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