Francois Rochon: 8 Rules For Successful Equity Investing

One of our favorite investors at The Acquirer’s Multiple is Francois Rochon at Giverny Capital. According to the firm’s website, Rochon’s U.S. Portfolio has an annualized return of 14.8% since 1993 compared to the S&P 500 of 9.2%.

Rochon wrote a great paper for investors called the Keys to Successful investing, which provides eight rules to become a successful investor.

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My personal favorite is rule #8 which is:

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What differentiates successful investors from others is not related to intelligence, but rather related to attitude. Warren Buffett often uses the adjective RATIONAL to describe good investors. Rational investors do not let themselves be influenced by fads or crises. Aside from a rational attitude, another important quality (and one apparent in Warren Buffett) is the capacity to always want to learn and progress. The world is in a perpetual state of evolution and it is not easy to for someone to also constantly evolve. To be in a constant state of learning, one must not only be passionate for their art, but also humble. Without humility, there is no opening for something new. Therefore, paradoxically, successful investors must be able to combine both a high confidence in their judgment while also remaining constantly humble. A difficult and fragile equilibrium.

Here's an excerpt from that paper:

If stocks represent the asset class that has generated the most wealth over the long term, why is it that so many investors fail to realize good returns with the stock market? Here are a few keys, according to Giverny Capital, that could help you in increasing your likelihood of success.

1- Consider stocks as fractional ownership in real businesses

2- Being present

3- Profit from market fluctuations rather than suffer from them

4- Leaving yourself a margin of safety

5- Stay within your circle of competence

6- Know when to sell

7- Learn from your mistakes

8- A constructive attitude

You can find the complete document here.

This article was originally published at The Acquirer's Multiple - Stock Screener.

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”