Saturday, April 19, 2008

Brookfield Asset Management's 8 Investing Principles

Taken from Bruce Flatt's speech for the Whitman Day Keynote Address.

8. Buy great assets- pay more for great assets at great location with great fundamental characteristics. Rarely buy where land is cheap because it is easily replaceable.

7. Generally invest for the long term. Assume you will own it forever. Properly leveraged quality assets inherently appreciate faster than inflation. It also compounds your dollars tax-free.

6. Prudently finance your assets. Mis-financing the portfolio can lead to disaster. You might not be able to realize the full value of your assets if you can’t make it through a down market, liquidity crisis, etc. Even the best assets are absolutely worthless if you cannot hold them to see another day.

5. Never become too positive or too negative in the markets. In the longer term, assume asset appreciate will always revert to the mean.

4. Invest against the common trend. Significant opportunities arise when things are negative. This is where great value investments can be made. 99% of business transactions occur inside some band of reasonable valuation. 1% of business transactions occur outside of that band, and that's what you should be looking for. In the 99% area, just try to avoid the mistakes.

3. Build with quality people. Business and life are about doing things you enjoy. If you don’t enjoy them, you likely won’t become successful. Finding good people, who are competent and willing to work in a team, is one of the most important organizational factors. Very important during the turbulent times.

2. Execution. Strategy is important, but without execution it is worthless.

1. Never deviate from the first 7 principles. It is very seductive to invest when everyone is making money. It is easier to buy low quality assets because they look like they are better starting off. But higher risk more than offsets it in the end.


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