Immutable laws make good defence

Titled ‘The seven immutable laws of Investing’, I think this is a gem from Montier.

1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand

Some highlights:

– In point 1, Montier mentions the use of a deep value screen which is as follows:

1) Earnings yield of twice the AAA bond yield (as of writing, the 10 year AAA corporate bond is going for 3.98% which means this screen calls for a P/E of 12.6x).

2) Dividend yield of at least two-thirds of the AAA bond yield. (or 2.65%)

3) Total debt less then two-thirds of the tangible book value.

4) An extra criterion- a Graham and Dodd P/E of less than 16.5x

Read the full article here (at The Big Picture).

As for application to the Singapore context, frankly I’m not sure quite how to tweak the criteria. Shall come back to that at a later date.