MOS protects us from making wrong assumption, from chasing hot stocks, and provides an additional booster to return when MOS shrinks and "market" takes the stock off your hand.
Reviewing my stock selections over the past 5 years, a few good selection boost the return of the entire portfolio despite having many laggards in the entire portfolio. However, the percentage weight of the few good ideas must be heavy such that if they work out as expected, there will be a meaningful contribution to the entire return. It should also be that if it turns out to be wrong, it should be no catastrophe to the portfolio.
The best investor letter I've read in a long time by Howard Marks: How Quickly They Forget.
So after these few years, this is my checklist for stock selection:
1. Pristine balance sheet
2. Cashflows generating entities that does not rely heavily on external financing
3. Companies with high return on capital, with min threshold of about 15%...unless company in super rapid growth phase
4. Do not pay for growth, if growth materialises, it will just be an additional booster
5. Sum of the Parts valuation does not always work out...unless there is a fixed schedule already in place to release value, via spinoff, listing, securitisation policy, etc.
6. Discount to NAV scenario does not always work out...unless there are corporate actions that will help narrow the gap (e.g. stock buy-backs).
7. Insist on a MARGIN OF SAFETY, so far all the stocks that i've lost significant money on are simply due to insufficient MOS in place...
