freebirdcapitalA speculator bets that someone else will pay more later. An investor buys a share in a business and lives on what that business earns. Everything on this site follows the second attitude — with a toolkit I know from controlling: what does the capital earn, what does it cost, and what is the business worth under sober assumptions?
Mindset
Value investing means buying shares in good companies when their price is below their intrinsic value — the present value of what they will earn for their owners. The principle fits in one sentence and is hard to stick to in practice, because the obstacles are rarely technical. I have written down four of them:
- Invest only money you do not need. Anyone who depends on their investments cannot decide rationally in a downturn. Every asset class falls by half or more at some point in an investor's life. The emergency fund stays outside the portfolio.
- Expect periods in which the method lags. In speculative phases, a value-oriented approach does worse than the market. That is not a flaw of the method but its price.
- Sentiment is information about others, not about the company. The best entry opportunities arise when many must or want to sell. Knowing this, you read a price fall first as a question: has the business changed — or only the price?
- Most of the time, nothing happens. Read a lot, discard a lot, buy rarely, hold long. The greatest challenge is to do nothing.
Because no intrinsic value can be determined to the euro, every purchase needs a margin of safety: the gap between price and estimated value that absorbs errors in one's own assumptions. The more uncertain the forecast, the larger the margin must be.
The process
My rulebook
Rules protect against one's own moods. These apply to my individual-stock portfolio. They describe my approach; they are not a recommendation for anyone else.
| Rule | Content | Why |
|---|---|---|
| Quality first | Companies with a long, unbroken dividend history; lists of long-term dividend growers as the starting point for screening | Decades of dividends are hard evidence of stable earning power |
| Price before purchase | Buy only at or below fair value — derived from earnings growth and a fair P/E of at most 15 that falls as interest rates rise | The entry price decides the return (Two keys, calculator) |
| Dividend yield ≥ 3 % at purchase | as an additional filter against overpriced entries; in the Freebird Rating measured together with dividend growth against the risk-free rate | For sound companies, a high starting yield is usually a valuation signal |
| The dividend must be covered | Payout ratio against earnings and against free cash flow; the worse value counts. For real-estate companies only the ratio against AFFO counts. Sector thresholds in the Freebird Rating | A dividend is paid from cash, not from earnings |
| Exception with a limit | Outstanding quality also at fair value — never well above it | The best companies are rarely cheap, but sometimes fairly valued |
| Count the taxes | US withholding tax of 15 % with form W-8BEN; creditable in Germany, but lost within the saver's allowance | Net return counts, not gross return (calculator) |
| Act on the thesis | Written investment thesis; sell on a broken thesis or extreme overvaluation, not on a price fall | Separates findings from mood |
No price forecasts, no market timing, no leveraged products, no buying on credit. And no public buy recommendations for individual stocks: examples on this site are model calculations and fictitious companies, not tips.
The metrics behind this process are covered in detail in the knowledge base: return on invested capital (ROIC), intangible assets and the interest rate as a yardstick.
