Question

What are the components of minimizing the risk in investing in a company?

Answer 1

1) Understand how much value a company creates value for its owners now and it's potential to create value in the future.

2) Learn how to make insightful, testable estimates of a company's value.

3) Understand what incoming information would materially change your estimate of a company's value and how to incorporate that information into your valuation estimate.

4) Only invest in companies when you can do so far a price much less than the value the firm will likely create.

5) Understand how to allocate investment capital prudently and how to measure and manage leverage so that you are not forced to make a bad decision due to a lack of liquidity.