Big Money Thinks Small is an investment book. It is about succeeding in investing by avoiding mistakes.
Joel Tillinghast is a Chartered Financial Analyst and fund manager at Fidelity Investments. He joined Fidelity since 1986 and was mentored by Peter Lynch, the legendary former manager of Magellan Fund. The author is the manager of Fidelity Low-Priced Stock Fund which regularly outperformed the S&P 500 Index over the last 25 years with only 4 down years and Fidelity Series Intrinsic Opportunities Fund.
Big Money Thinks Small has a total of 21 chapters and a foreword by Peter Lynch. The chapters are organized into 5 parts. Part I is Sleight of Mind and contains 4 chapters. It discusses the role of biases in investing. Part II is Blind Spots which is made up of 4 chapters. It is about identifying our own circle of competence. Part III is Honest, Capable Fiduciaries and consists of 4 chapters. It is about assessing management’s honesty and capability. Part IV is Live Long and Prosper which has 4 chapters. It teaches the ways to identify durable and resilient businesses. Part V is What’s It Worth? and contains 5 chapters. This part is about estimating the value of a stock.
Big Money Thinks Small is a book for value investors. In this book, the author shares his experience and investing strategy.
As we are all humans, we tend to let our emotions and biases get ahead when investing. Thus, the author advises us to let reason prevails in making investing decision. Furthermore, it is better to stay within one’s circle of competence when investing. Nonetheless, it does not mean that we should remain static. On the contrary, we should practice lifelong learning. By learning new things, we are able to widen our circle of competence and find more opportunities in the market.
To reduce the risk of losing money, the author suggests to invest in companies with trustworthy management. How do we spot bad management? Look out for pressure, opportunity and rationalization. Besides that, favour companies that have long term viability – those which will not be destroyed by changing times, commodization or excessive debt. Last but not least, do not overpay for a stock. Always seek a margin of safety when purchasing a stock. By doing all these, even if the outcome that we hope for does not materialize, at least we would not lose much.
In the book, the author provides some examples of accounting chicanery (Chapter 12), his method of valuation (Chapter 14 and 19) and his investing strategy (Chapter 17) too. According to the author, the 4 elements of value are profitability, life span, growth and certainty. Although a stock might not be able to score in all these elements, it should be able to fulfil as many criteria as possible to qualify as a worthy investment.
If you absolutely have no time, just skip to the last chapter (Chapter 21) as all the important bits are in this chapter. It is a summary of the whole book. However, I would advise you to read the whole book to have a good understanding of the author’s investing strategy.
The author has revealed something that I always knew but could not verbalize. The thing is that even investors have to speculate in some areas like obsolescence, financial overreach or a security’s value. Without some guesswork, it is impossible to assign a value to a stock. So, I guess every investor is speculating in some small ways.
Overall, I find this book to be very informative and it did deepen my investing knowledge. Nonetheless, I think I am unable to just copy the author’s style. Everyone has to develop his/her own path based on emotional character, knowledge and curiosity, according to the author. So, we should read more and practice to find a investing strategy that suits us the most.
- A successful investor is one who holds on for the long term and continues to monitor the fundamental story, and if it remains in place you stay, and if not you move on.
- The entire game is about figuring out what others have missed. The largest prizes go to those who think differently and correctly.
- When companies report profits but bleed cash, believe the cash.
- “What matters isn’t how well you play when you’re playing well. What matters is how well you play when you’re playing badly. – Martina Navratilova”
- For better or for worse, the value of a stock is unobservable; it’s always an educated opinion.
Interested in Big Money Thinks Small?
You may get the book from Kinokuniya Malaysia through the link below*.
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