Big Money Thinks Small is written by Joel Tillinghast, a fund manager at Fidelity Investments. He was mentored by Peter Lynch, the legendary fund manager at Fidelity. The author also has a spectacular performance with the fund that he manages too. The theme of this book is about succeeding in investing by avoiding mistakes.
Layout of Big Money Thinks Small
This book includes a foreword by Peter Lynch and is divided into five sections. Each section contains four chapters except for the last section which has five chapters.
Part I is Sleight of Mind. This part talks about emotions and biases and how they affect investing.
Part II is Blind Spots. It discusses investment blind spots and the importance of knowing one’s circle of competence.
Part III is Honest, Capable Fiduciaries. This part is about assessing management’s honesty and capability.
Part IV is Live Long and Prosper. It explores the reasons for the durability and resiliency of some industries.
Part V is What’s It Worth? In part V, the author puts the pieces together and shows us how to estimate the value of a stock. The last chapter is a summary of the whole book.
Highlights
According to the author, the four elements of value are profitability, life span, growth and certainty. To answer each of these elements, he has a checklist that he uses to pinpoint vulnerabilities.
His investing philosophy revolves around five themes and I will try to summarize it here.
The first is do not let emotions to guide financial decisions. The investing decision should be as rational as possible. This requires us to be clear about our own motives, capabilities and limitations.
Second, recognize our circle of competence. Focus on the things that we know best. However, we should also continue to learn in order to expand our circle of competence.
Third, invest in companies run by honest, trustworthy and capable management. This will reduce the risk of losing money due to fraud.
Fourth, look for companies that will be viable for a long time. Avoid companies that will be easily destroyed by changing times, commodization or excessive debt.
Lastly, seek a margin of safety for the stock that we purchase. Do not overpay. A great stock with the wrong entry price will turn out to be a bad investment.
Conclusion
This is a good investing book for value investors. The author shares his own experience and his process of valuing a stock with some examples. There is a lot to be learnt from this book and I am glad that I read it.
Below are some witty quotes from the book.
“What’s worked in the past may not continue to work.”
“Confidence comes more often from ignorance than knowledge.”
“An investment is always rooted in price and current circumstance.”
“Feel the fear, but let reason decide.”
“The entire game is about figuring out what others have missed. The largest prizes go to those who think differently and correctly.”
“A visible gap between market price and your calculation of intrinsic value indicates that either you or the market must be misguided.”
“The secret of success in business and investing is to do something useful that no one else is doing.”
“The further you look into the future, the more likely your forecasts will turn out to be wrong.”
Recommended book
If you are interested in Big Money Thinks Small, you may get the book from The Kinokuniya Malaysia through the link below*.
*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.
