In our IOI training sessions, we talk about the importance of scientific method in investing. We make hypotheses about the likely future levels of a company’s value drivers and check our hypotheses against actual results as time passes. Only by objectively measuring our assumptions against observable results can we tell whether our original analysis was right or wrong, and only by understanding whether we were right or wrong can we subsequently make good decisions about our investments.
We recently reviewed our April 2014 valuation of Ford and realized that one of our critical assumptions had been wrong. We have written a note detailing our analysis and possible reasons for our earlier mistakes, which is now posted in the Research Library.
We believe that this process of objective evaluation is essential to long-term success in investing, and found that even though we had made a valuation error in 2014, elements of our investing process have actually helped us in limiting financial damage from this error. As we pointed out in a blog posting last month, attention to process pays off!
As an aside, the renovation of the Framework Investing website is almost done! When it is, you will not need to jump between sites to download research. Look forward to big changes soon!
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