The Entreprenurial Investor

These are my notes to the first nine chapters of The Entreprenurial Investor they are not intended to take the place of the book in any way, and I recommend everyone purchase the book - it's by far the best I've read on investing and business in a while.




Entreprenurial Investor

Chapter 1 Eyes Believe What You See, Ears Believe Others

· Buffett said, “You’re neither right nor wrong, because other people agree with you; you’re right, because your facts and reasoning are right.”
· Bernard Baruch: “Every man entitled to his own opinion, but not his own facts.”
· Education w/o experience = knowledge w/o wisdom
· “Your eyes believe what they see; your ears believe others” – Fortune Cookie
· Kodak didn’t miss the digital cameras trend – simply mishandled it.
· Ad industry reacted to TiVo w/ in-program ads, what’s future for Viacom, Disney and NBC if people have the power to avoid ads?
· Wal-Mart & Costco and specialty retailers like Trader Joe’s and Whole Foods taking share form traditional grocery stores.
· Large companies should watch companies in stead of listening to consultants
· Good investors need not know everything, but ought to know what’s going on.

Chapter 2 Irrationality is Opportunity

· At best stock market democratizes capitalism
· At worst it’s a gambling den
· Irrational exuberance works with irrational fear
· Logical investors must take irrational behavior into account
· Don’t blindly follow herd, but pay close attention to its movements
· LT trends allow greater perspective and improve ability to evaluate probabilities
· Excellent advise: “Don’t panic,” from Hitchhiker’s Guide
· Sometimes market is irrational because of mod mentality. Prudent investors stay independent and keep watch list of quality companies for price drops

Chapter 3 Dirty Harry’s Investment Philosophy

· Dirty Harry said, “a mans got to know his limitations.” Investors must know what they own
· Improve odds of success by investing in simple businesses
· Before buying a company one must ask, can I explain this to a four-year old?
· If you can understand the company so can all the other people involved
· In LT Wall St. rewards simplicity
· When buying shares be sure you would buy the whole company
· Ask: “What if you were the CEO?”
· Learn what you can about company from co-workers and customers

Chapter 4 Adversity in Diversity: Portfolio Concentration

· Most critical aspect of investment style is commitment to concentrated portfolio
· At any time may hold only 10 stocks never more than 15
· Wide diversification doesn’t eliminate risk: it presents a different kind of risk
· If you owns a lot of companies your unsystematic risk almost diminishes but so does chance at beating the market
· Instead of safety in numbers seek safety in knowledge
· Unsystematic risk can be greatly reduced just by owning 15 companies
· Small portfolios more likely to outperform the market, but also to underperform so stock selection is important
· Munger, “When you mix raisins with turds you’ve still got turds.”

Chapter 5 Just buy the best (doesn’t include most funds)

· Funds and advisors use small-cap and large-cap portfolios to compel people to buy multiple funds entrepreneurial investors use, “Small custom portfolios of stocks, selected for individual quality of value.”
· They don’t care about market cap, use a broad range of criteria to judge risks and rewards

Chapter 7 Who Really Manages the Brand

· From The Thin Blue Line, “It takes a great prosecutor to convict an innocent man.”
· Ad spending generally varies inversely to a product’s value
· For valueless products branding is the challenge
· Brands are built through customer experience (not marketing) and destroyed by customer experience (not competition)
· Investors should look at a company through the customer’s eyes and be a customer whenever possible
· Brand should instantly telegraph everything good and valuable about the company
· J&J Tylenol
· Poor customer experience, arrogant management, and misplace values will eventually destroy even the best brand

Chapter 8 What Makes You Special?

· When obsessively focusing on competition the best you can create is parity; when focusing on customers you can innovate and create a competitive advantage
· Competitive advantage – any organization that consistently profits more than any other organization
· Differentiation = attributes that separate one company from another
· Cost structure produce cost savings unavailable to competitors
· Strategic planning is really the process of imagining new competitive advantages in the future
· Recurring revenues strategic alliances and LT commitments create competitive advantages
· Patentable innovation is one of steepest competitive advantages
· In general technology companies must constantly re-invent themselves to sustain competitive advantages

Chapter 9 Company Culture

· CEO’s still exhibit an, “ends justify the means” approach to management
· Company culture will reflect the personality of the CEO
· Wiring CEO is the single most important task in management
· Carly Fiorina was arrogant, dictatorial and elitist, bad for company culture but what the board of directors ordered
· Company culture is the least appreciated factor in judging a business; but is the most important

Chapter 6 is an investor profile I encourage you to buy the book and check it out.

The managers at West Coast Asset Management are the authors of the book, their free newsletters and podcast are available at their website.