Brett Arend recently informed us of the passing of Dan Bunting, a man who “successfully managed money on behalf of private individuals and institutions for nearly 40 years.”

Over the years, Bunting had developed a series of rules that governed his investing strategies.

Here is the short version of Bunting’s Laws:

1. Sell stocks of companies that announce huge acquisitions, that overdiversify, or that spend a fortune on a lavish new headquarters.

2. Avoid stocks where management picks fights with analysts (or, by extension, hedge funds). See Overstock.com in 2005; Netflix in 2010.

3. Watch out when executives start selling a lot of stock — regardless of plausible-sounding excuses. Top execs in homebuilders, mortgage underwriters and Wall Street dumped billions before the 2008 crash.

4. “Run a mile” from all stocks in an industry going through a huge investment boom: Massive overcapacity and consequent collapse is inevitable.

5. Steer clear of investing in manufacturing companies. Their industries are usually plagued with extreme cycles of boom and bust, overcapacity and slumps.

6. Pay little attention to economists or market gurus.

7. Mistrust all mathematical trading formulas as well — they invariably fail just when you most need them to work.

8. Look for companies where the insiders are buying lots of stock.

9. Look for companies generating a lot of cash — a great sign of sustained outperformance.

10. Look for companies which have monopolies (or near monopolies), and those which manage to take out their main competitors.

11. Remember you are buying businesses, not just stocks. Pay close attention to the quality of the business, and especially the quality of the management.

12. Look for companies which have earned the trust of consumers, and which have very strong brand names.

Good list Brett, thanks for sharing.

 

 

Source:
12 stock investing rules for the next 40 years
Brett Arends
MarketWatch, Nov. 30, 2012
http://www.marketwatch.com/story/12-stock-investing-rules-for-the-next-40-years-2012-11-30

Category: Investing, Rules

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7 Responses to “Bunting’s Laws of Investing”

  1. farmera1 says:

    I like the Bunting listing.

    Question: I used to be able to get free information on the internet on what companies and industry insiders were doing relative to what they did historically. Now I can’t find it. I know you can find insider sales and purchases, but without any context it is worthless to me.

    Any ideas on where insider info can be found in a useful form???

    The thinking applies to other investments. I particularly like number 4.

    “Run a mile” from all stocks in an industry going through a huge investment boom: Massive overcapacity and consequent collapse is inevitable.”

    Farm land going up 10-20%/yr is a great example of what I would call over investment aka bubble. Hearing farmers brag about how much they paid for land, and how a later purchase was 20% more makes me very nervous.

  2. changja says:

    Overall agree but sometimes it can be a bit too simplified. Apple is building a huge new headquarters, are you going to dump the stock only because of that?

    You need to be a bit more holistic than that.

  3. dwkunkel says:

    re Apple’s new headquarters:

    Wait and see – here in Silicon Valley a dramatic new headquarters almost always portends dramatic decline. Sun Microsystems is the most recent example, but there have been many others.

  4. TripleB says:

    farmera1 – http://www.secform4.com does a good job on insider transactions.

  5. ricecake says:

    Sound like there aren’t much out there to invest in at all. It’s like trust no one and better just keep the cash. Or start your own business it’s a DIY world.

  6. cgercke says:

    Nice list, but it leaves me curious about what choices these principles led him to make. Anybody know his big winners?

  7. orvil tootenbacher says:

    ignore advice from people parroting buffet (e.g. “buying businesses, not just stocks” etc.). stick with the source.