Investing Concepts
The mental models that separate disciplined investors from the crowd.
20
core concepts
1
mental model at a time
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Concept
Concept: Business Cycles
Business cycles are the recurring pattern of expansion and contraction in economic activity. Industries and companies move through predictable phases — growt...
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Concept: Capital Allocation
Capital allocation is how management decides to use the company's cash — reinvest in the business, make acquisitions, pay dividends, buy back shares, or pay...
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Concept: Circle of Competence
Your circle of competence is the set of industries, business models, and topics you genuinely understand well enough to make informed investment decisions. S...
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Concept: Compounding
Compounding is earning returns on your returns. When profits are reinvested and themselves generate more profits, wealth grows exponentially rather than line...
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Concept: Corporate Governance
Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. In simple terms: does the management wor...
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Concept: Discounted Cash Flow (DCF)
DCF is a valuation method that calculates what a business is worth today by estimating all the cash it will produce in the future and discounting those cash...
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Concept: Diversification
Diversification means spreading investments across multiple assets so that a loss in one doesn't destroy your entire portfolio. It's not about maximising ret...
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Concept: DuPont Analysis
DuPont Analysis decomposes Return on Equity (ROE) into its 3 drivers — profitability, efficiency, and leverage. Instead of just checking if ROE is high, DuPo...
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Concept: Earnings Quality
Earnings quality measures how real, sustainable, and repeatable a company's reported profits are. Highquality earnings are backed by actual cash, come from c...
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Concept: Economic Moats
An economic moat is a sustainable competitive advantage that protects a company's profits from competition — like a moat around a castle. The wider the moat,...
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Concept: Forensic Accounting
Forensic accounting is the art of detecting financial manipulation, fraud, and aggressive accounting by analysing published financial statements. You're look...
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Concept: Growth vs Value Investing
Growth and value are the two fundamental investing styles. Growth investors buy fastgrowing companies expecting earnings to justify today's high price. Value...
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Concept: Intrinsic Value
Intrinsic value is the true worth of a business based on its ability to generate future cash flows — independent of what the stock market says today. It's wh...
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Concept: Management Quality
Management quality is the assessment of whether a company's leadership is competent, honest, and aligned with minority shareholders. In India's promoterdomin...
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Concept: Margin of Safety
Margin of safety is the gap between what a company is worth (intrinsic value) and what you pay (market price). It's your cushion against being wrong — about...
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Concept: Mean Reversion
Mean reversion is the tendency for extreme values to return toward the average over time. In markets: abnormally high margins compress, abnormally low valuat...
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Concept: Operating Leverage
Operating leverage describes how a company's profit changes in response to a change in revenue. A company with high operating leverage sees profits grow much...
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Concept: Position Sizing
Position sizing determines how much of your portfolio to allocate to each investment. It's arguably more important than WHAT you buy — because even the best...
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Concept: Pricing Power
Pricing power is a company's ability to raise prices without losing significant volume. It's the single most important quality a business can have according...
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Concept: Sector Rotation
Sector rotation is the strategy of shifting portfolio allocation between sectors based on where we are in the economic cycle. Different sectors outperform at...