I’ve been a user of GuruFocus.com for some time. When looking at a stock, I like to check on the site its Piotroski F-Score, potential warnings signs, and trades of renowned investors. Hence I was interested to better understand the philosophy behind GuruFocus.com, which founder Charlie Tian describes in Invest Like a Guru.
A physicist by training, the tech bubble was a defining moment for Charlie Tian. Following his poor experience with stocks during that period, building on the teachings of Peter Lynch, Warren Buffett and Donald Yacktman, Tian developed one of his core principles: Buy Only Good Companies. By ‘Good Companies’, the author means consistently profitable businesses (with double-digit operating margins and returns on invested capital) that can continuously grow revenues and earnings through their operations.
Chapter 6 provides a useful 20-item checklist for investing in good companies at fair prices (see pages 102-103). Also, the author has developed a series of Warning Signs (e.g., weak Altman Z-Score, asset growth faster than revenue growth, issuance of new shares), which are flagged on GuruFocus.com
The author prefers to stay away from cyclical stocks – especially leveraged cyclicals – and deep value situations where value erodes over time. Based on investors’ experiences with Sears, Weight Watchers, BlackBerry, Tian comes to a surprising conclusion for a value investor: “never buy low-quality companies again, no matter how undervalued they seem to be!”. This is too radical for me.
I find Invest Like a Guru a helpful companion to GuruFocus.com, with useful suggestions to avoid permanent losses of capital.