STREET DOGS

FIVE lessons from Berkowitz:

Bruce

If you aren’t familiar with a company's business, and aren’t willing to take the time to become knowledgeable about it, don’t invest in it.

Ignoring the crowd is painful, but it works. When the tech bubble got going, about one-third of all of my clients left. They just said: “You know, you are doing okay, but this tech stuff is great. You got to get into it.” I said: “No, you are going to lose money.” And even my smartest clients said: “Oh, you got to do it!” But we stayed value-based. It was painful, but it worked out okay for us in the end.

The seeds of great performance are usually sown in times of intense fear after a disaster. When fear turns into hatred it should also be embraced. If others fear or hate a particular investment, take the time to analyse why, and whether fear or hatred is justified.

But while some analysts, managers, and investors will obsess over price targets and daily moves, it’s important to keep a stock’s price in context. Instead of looking directly at an individual price and its movement, be sure to measure it against a company’s value, cash flows, and other important metrics that can give you a better view of the operation’s ability to grow and flourish.

Can you kill the investment? Is there adult supervision at the company? Is the company essential? Does it depend upon the kindness of strangers? What can the company make? Can it make a reasonable profit for owners? How are owners paid? Distributions? Is it run by honest, decent folks? Does accounting reflect reality? Does the balance sheet match up with the income statement? Michel Pireu — e-mail pireum@streetdogs.co.za