Episode from the podcastInvestED: The Rule #1 Investing Podcast

Allan Mecham’s Investing Philosophies

Released Tuesday, 29th September 2020
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Allan Mecham is a well-known investor who runs a hedge fund called Arlington Value Capital. Allan has had a phenomenal track record, and implements the values and philosophies of Rule #1 investing. In 2012, Allan sent out a letter to his investors that covered some of his core investing philosophies.

One of those philosophies included that in order to be successful in the stock market, you must look for the rare combination of business safety, an attractive price, and a clear understanding of the business that leads to a low-risk and market-meeting return.

His principles also focus on the idea that you’re not trying to make money in investing, but the objective is to not lose money. This doesn’t mean the stock price never goes down from where you bought it, but rather, the value of the business never decreases from where you bought it.

Determining whether or not a business’s value will decrease comes down to finding a safe company at a great price, and making sure you understand it fully. This is one of the core Rule #1 investing principles. 

In Allan’s letter, he also stated that he has one goal in mind when structuring his policies. That is, to make rational decisions in investing which will lead to wonderful returns. This includes staying within your circle of competence and thinking objectively.

The most important thing I can tell you about becoming a great investor is to focus on your circle of competence. Try to buy businesses that really mean something to you. What are you passionate about? What do you actually know something about? Those are the questions that will make you connect to your investments, and the more you connect with your investments, the more you will own it as if you own the whole business. The more you understand the meaning of the business, the better investor you are going to be.

What Allan means by staying objective in investing is not being influenced by your emotions, and sticking to the data and facts in your researching process. Only buy into a company with the mindset that you are owning the business as if it were your own—and that you plan to own that company for the long-term. This is also aligned with Rule #1 investing philosophies.

In today’s podcast, Phil dives deeper into Allan Mecham’s investing philosophies, and discusses what investors can learn from them. 

Learn more about buying stocks within your circle of competence with my 3 Circles Exercise Guide! Click here to download: https://bit.ly/3ieOJbp

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