Investment Strategy - Selling stocks is acceptable to avoid potential losses and capitalize on new opportunities [1] - Selling is appropriate if a company's fundamentals deteriorate or growth catalysts fail [2] - Selling is also acceptable if a better opportunity arises or life circumstances change [3] Risk Management - Confidence in the investment process is crucial for disciplined investing, especially during market volatility [3] - Building a firm foundation of knowledge is recommended over blind faith [4] - Investors should invest within their circle of competence to make informed decisions [4] - Staying within one's circle of competence allows for learning from mistakes and refining strategy [5] Long-Term Investing - Successful long-term investors prioritize knowledge and avoid short-term thinking and emotions [6] - Continuously pursuing knowledge expands the circle of competence over time [5]

Investment Strategy & Risk Management - Investment strategies should be tailored to individual goals and life circumstances, as a one-size-fits-all approach is not suitable [3] - Sticking to a well-defined investment plan is crucial, despite market volatility and inevitable downturns [3] - Panic selling during market downturns can lock in losses and prevent participation in subsequent recoveries [4][5][6] - Market crashes can present opportunities to buy stocks, as evidenced by insider buying activity during financial crises [7] - A long-term mindset, focusing on the fundamental value of companies, is essential for navigating market volatility [8][9] - Building a margin of safety into stock purchases allows for error and provides a buffer against market fluctuations [9][10] Investment Timing & Dollar Cost Averaging - Timing the market is less important than the investments themselves; even investing at the worst times can outperform not investing at all in the long run [10][11] - Dollar cost averaging, involving regular investments regardless of market conditions, is an effective long-term strategy [11]

Investment Strategy & Asset Allocation - A great company isn't necessarily a great investment unless it fits an investor's plan, highlighting the importance of a tailored strategy [1] - Asset allocation should be tailored to personal goals, risk tolerance, and time horizon [2] - Time horizon is crucial when deciding asset allocation between stocks and less risky assets like bonds; shorter time horizons may warrant shifting to less risky assets [4][5] - Neither asset allocation nor overall strategy is static; it should evolve as life circumstances change [6] Investment Styles - Common investment philosophies include deep value investing, high-quality investing, growth investing, and dividend investing, each with different places in a portfolio [7][8] - Deep value investing focuses on companies priced significantly below their intrinsic value, even if they are not exceptional companies [9][10] - High-quality investing focuses on financially strong companies with competitive advantages, held for long-term compounding [11][12] - Growth investing targets companies with revenue growth outpacing the broader market, often in technology sectors, but with higher risk [12][13] - Dividend investing prioritizes recurring dividend payments for a steady income stream, typically from larger, more mature companies with less price volatility but slower capital appreciation [14][15]

Investment Analysis - The report emphasizes the importance of identifying potentially good investments based on their overall standing, competitive position, and industry health [1] - It suggests drilling down into nuanced components of a business's operations, such as financial strength, profitability, and growth prospects [1] Investment Strategy - Understanding a business is only part of the investment process; aligning investments with personal goals and strategies is crucial [2] - The next module will cover outlining a repeatable strategy by understanding personal financial goals, time horizon, and risk tolerance [2]

Value Investing Considerations - Value traps are stocks that appear cheap based on metrics like the PE ratio, but are cheap for a reason [1][3] - Investor emotions, such as negative market sentiment or overreaction to missed earnings, can temporarily undervalue a good business [2] - Declining business fundamentals, eroding competitive position, or lack of industry growth can make a stock a value trap [4] Due Diligence - To avoid value traps, investors must investigate a business's fundamentals beyond valuation metrics [4][5] - Key fundamentals to examine include financial strength, profitability, growth prospects, and industry dynamics [5] - Red flags in these areas may justify a low valuation [5] Tools and Resources - Guru Focus's warning signs tool can help quickly identify potential value traps [6]

Financial Ratios & Analysis - Financial ratios standardize metrics from financial statements to assess business quality and compare company performance to its history and competitors [1][2] - Four key components of a business to focus on are financial strength, profitability, growth, and value [2][3] Financial Strength - Assessing financial strength involves examining debt management through leverage ratios and liquidity levels using ratios like quick or current ratio [4][5] - Guru Focus's stock summary page provides financial strength metrics for comparison against company history and industry competitors [5] Profitability - Profitability is assessed through margins (gross, operating, and net) and returns (return on assets, return on equity, and return on invested capital) [5][6][7] - Guru Focus's stock summary page provides profitability metrics [7] Growth & Valuation - Growth is evaluated by looking at historical and projected future growth rates [7][8] - Valuation involves comparing stock price to underlying business aspects using tools like price-to-earnings, price-to-sales, and price-to-book ratios, as well as GF Value [8][9] Investment Considerations - Investors should understand the difference between an underpriced stock and a stock that's cheap for a good reason [10]

Financial Statements Overview - Financial statements are essential for long-term investors to analyze a company's investment potential [3] - The three primary financial statements are the income statement, cash flow statement, and balance sheet [4] - These reports provide a snapshot of a business's operations and raw data for investment assessment [4] Income Statement (Profit and Loss Statement) - The income statement reveals a company's revenues, expenses, and profits over a period [5] - It provides insights into profitability and operational efficiency [5] - Key metrics include revenue growth, gross margins, and net income [5] Cash Flow Statement - The cash flow statement tracks how a company generates and uses cash [6] - It helps investors assess liquidity, indicating whether a company can meet its obligations [7] - Key metrics include operating cash flow and free cash flow [7] Balance Sheet - The balance sheet records a single snapshot in time, showing what a company owns versus what it owes [8] - It helps determine the financial strength of a company [8] - Key metrics include total assets, total liabilities, and shareholders' equity [8] Financial Ratios & Analysis - Investors use financial ratios to analyze a company's operations [2] - Guru Focus provides charts to visualize money flow in and out of a company for each financial statement [6]

Investment Analysis Framework - The industry suggests using a quick analytical litmus test to determine if a company warrants investment consideration [1] - Fundamental strength analysis can be efficiently conducted using the GF score [1] - Relative standing against competitors and margin maintenance ability can be assessed via the moat score on Guru Focus [2] - Industry overview tools on Guru Focus can help determine if a business operates in a supportive industry for growth [2][3] - Stocks that meet all three criteria warrant further investigation [3] Further Investigation - Major financial statements reported by publicly traded companies are important for deeper analysis [4] - Key financial metrics and ratios are used to analyze financial reports [4] - Common traps that can trip up investors should be avoided [4] - Developing a deeper level of understanding is crucial for long-term investors [4]

Financial Statements Overview - The report introduces the three core financial statements: the income statement, balance sheet, and cash flow statement [1] - These statements reveal a company's performance and financial health [1] - They are important for long-term investors to understand a business's financial health [1] Educational Resource - Further learning resources are available at GuruFocus.com/GuruUniversity [1]

Stock Classification - Market capitalization is a common way to classify stocks, representing the total monetary value of a company's outstanding shares [2][3] - Large-cap stocks, with market capitalization greater than $10 billion, tend to be stable with lower volatility and high dividend yields [4] - Small-cap stocks, with market capitalization under $2 billion, have potential for rapid expansion but carry more risk [5] - Mid-cap stocks offer a balance between stability and growth opportunities [6] Investment Styles - Value stocks trade at a price below their intrinsic value, offering potential opportunities [8] - Growth stocks are expected to have rapid intrinsic value growth, justifying their current market price [9][10] - Dividend stocks are from established companies that distribute profits as dividends, providing a steady income stream [10][11] Investment Vehicles - Mutual funds are portfolios managed by professionals, offering diversification but with management fees [12][13][14] - ETFs (Exchange-Traded Funds) are static baskets of stocks, providing diversification without active management fees [14][15]