Nolsen Bedon, Ltd.

Always remind yourself that you’re buying an equity stake in a going concern and not just a stock to speculate on. You want to be proud of what you own and what you put your money into rather than being in it just for the anticipated gain. Therefore, what makes a wonderful company is personal. A great business for someone else will not necessarily be a great business for you to invest in. You want to invest in businesses that are aligned with your own values and interests.

To decide whether a specific company has meaning to you, consider two follow-up questions:

• Would you choose to own the whole business if you had the funds available? In other words, do you admire what the company has achieved and what it will be working to accomplish in the future? Obviously, this will involve some judgement calls. Some people have no problems investing in companies that exploit child labor in third-world countries. Others wouldn’t dream of being a party to that kind of approach to business. The starting point for identifying a genuinely wonderful business is to look for a company you admire first and foremost.
• Do you understand the company’s business model well enough to own all of it? If you don’t have a clue how the business generates a profit, you can’t make a Rule #1 investment. It will be impossible to gauge how the company will do in the future if you haven’t a clue what it’s doing at present. You don’t need to understand all of the intricacies, but there must be some general awareness of specifically what the company does to make money.

With these two questions in mind, you probably should look to invest in the companies that make the products and deliver the services you use as a customer. More than likely, these companies will lie at the intersection of your personal passions, interests, and habits of consumption. Start with companies you are familiar with and then gradually expand your focus.

Once you begin to start thinking this way, you’ll soon notice there are some areas of the market you should avoid because you don’t understand what’s going on. That’s good. It will save you some losses in the future if you stick to lines of business and areas of technology you are familiar with and competent in.

Rule #1

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