Protect the downside. Worry about the margin of safety.

One of the dangers about net-net investing is that if you buy a net-net that begins to lose money your net-net goes down and your capacity to be able to make a profit becomes less secure. So the trick is not necessarily to predict what the earnings are going to be but to have a clear conviction that the company isn't going bust and that your margin of safety will remain intact over time.

I try to keep in mind Oscar Wilde's comment that "saints always have a past and sinners always have a future," so no investment should be ruled out simply on the basis of past history. We focus on liquidation analysis and liquidation analysis alone.

The difference between the price we pay for a stock and its liquidation value gives us a margin of safety. This kind of investing is one of the most effective ways of achieving good long term results.

We do liquidation analysis and liquidation analysis only.

The company must be profitable. Preferably it will have increased its earnings for the past five years and there will have been no deficits over that period.

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