Psychological issues can come into play, but selling strikes me as fairly straightforward. We'll sell any time we conclude our thesis is flawed or risk factors have emerged that make us doubt the probability of return. In ideas that are working out, if we believe the fair value of a stock that is a 5 [...]

We have a motto, “buy cash flow, short cash burn.” If a business is burning cash, they're destroying value quarter after quarter. Two things generally happen. They have to recapitalize on unfavorable terms, which is good for us as short sellers. Or, they can't get financing, which, of course, is nirvana for us as short [...]

Our view is that short selling may not in most years be worth the time and effort you spend on it, but you do it precisely for those years like 2008 when shorting not only offsets losses on your longs, but also produces capital that allows you to average down on the long side. A [...]

We've had bad experiences where we've tried to do scuttlebutt research, such as overweighting anecdotal evidence given to us by someone in the value chain. We've also overweighted a toxic response to the current management team when we shouldn't have. For us, and for most people, it's very hard not to overvalue information that you [...]

One investor who has greatly influenced me from a conceptual standpoint is Howard Marks, the Chairman of Oaktree Capital. He's not an equity investor, but he describes this notion of running a core strategy, focused on beating the market through the accumulation of small but high-probability advantages over a long period of time. The alternative, [...]

One of the temptations of a professional investor is that one is often drawn towards difficult analytical problems in search of a big payoff. If anything, this temptation has been amplified in recent years by the acclaim and financial rewards that have accrued to those who end up on the right side of a big, [...]

I'm also not going to spend any time trying to figure out what a conglomerate like General Electric is worth. Too many moving parts, and there are so many other people who have to own it that it's very unlikely it will be dramatically mispriced anyway.

I've learned that to meet my return goals I can't have big losers. So regardless of how cheap something is or how much potential upside there is, that means avoiding companies that can wipe out with too much debt, unproven business models, secularly challenged end markets or no durable competitive advantages.

Then it's a question of looking at the price. If price is significantly below that fair value, you're likely to have a good outcome by investing in it. If the price is significantly above that fair value, you can make good money by shorting it.

I've heard it said many times that value investing is not as much about doing smart things as it is about not doing dumb things. Avoiding mistakes, resisting market fads, and focusing on allocating capital into ideas that are highly likely to produce satisfactory returns and that offer a margin of safety against permanent capital [...]