Bruce Flatt on Value, Discipline, and Durability

1. Prioritize Downside Protection

In investment decisions, focus primarily on understanding and mitigating downside risks, including what can go wrong and how to deal with it, as upside potential often takes care of itself.

2. Adhere to Core Investing Principles

Buy great things or great businesses, hold them for long periods, and aim to earn cash returns, as these fundamentals of investing have not changed.

3. Invest with a Decades-Long View

View markets as a marathon measured in decades, not a race to outperform every quarter, to position for massive global shifts and compound steadily over time.

4. Ignore Short-Term Market Noise

Develop the ability to ignore short-term market noise, as this can be a significant competitive advantage for long-term investing.

5. Prepare for Downturns in Good Times

Always use periods of strong market performance to prepare for inevitable down markets, as those who fail to do so are often unsuccessful in the long run.

6. Capitalize on Price-Value Discrepancies

Seek out companies where the market price does not reflect the underlying value, especially those overlooked by public markets or indexes, and consider taking them private to unlock their potential.

7. Manage Business by Fundamentals

Run a business based on its fundamental value and cash flow, making decisions to either distribute or reinvest profits, rather than being distracted by daily market price fluctuations.

8. Apply AI for Business Efficiency

Identify and apply artificial intelligence and robotics to business processes to improve efficiency, reduce labor components, and potentially repatriate manufacturing to demand centers.

9. Begin AI Application Now

Start applying artificial intelligence within your business now, as we are still in the early stages of its widespread application, and it is not too late to begin.

10. Invest in Top-Tier Assets

Avoid investing in commodity-grade assets (e.g., office, retail, industrial, hotels) and instead focus on acquiring and continuously reinvesting in the top 25% of assets in any given category.

11. Prudently Finance Assets with Fixed Debt

Finance assets with a prudent amount of fixed-rate debt that can withstand market fluctuations, and ensure you have additional capital available to support the asset if initial assumptions are incorrect.

12. Preserve Assets During Downturns

During recessions or market bottoms, prioritize keeping all your assets intact and avoid significant losses, as many others will have lost theirs.

13. Invest in Recovery Phase

Once you’ve secured your existing business during a downturn, strategically invest capital into new businesses as the market begins to recover to enhance your entity.

14. Aim for Moderate Risk, Long-Term Returns

Take moderate amounts of risk to earn good, consistent returns over long periods, understanding that average returns compounded over an above-average period lead to outstanding results.

15. Prioritize Long-Term Reasonable Returns

Define investment success as earning reasonable returns over very long periods of time, rather than trying to make a lot of money quickly.

16. Embrace Small, Learnable Mistakes

Encourage making small, incremental mistakes as part of learning and advancement, but strictly avoid making large, irreparable errors.

17. Stay Within Core Competence

Avoid venturing into investment areas that are merely adjunct to your core expertise, especially if you lack deep knowledge, to prevent making flawed investment decisions.

18. Focus on Correct Investment Trends

Understand that financial models are rarely exact, so in investing, prioritize accurately identifying and understanding the underlying trends rather than precise numerical predictions.

19. Buy Assets Below Intrinsic Value

Aim to purchase assets at a discount to their perceived intrinsic value, ensuring the price is right for the value you’re acquiring.

20. Invest in Rule-of-Law Countries

Prioritize investing in countries that possess a strong rule of law, stable governance, and align with your operational standards, ensuring they remain good places for long-term investment.

21. Maintain On-the-Ground Presence

Establish a physical presence in target countries to conduct thorough due diligence and be prepared to act on investment opportunities when they arise, rather than pursuing random, remote deals.

22. Conduct Investment Post-Mortems

Regularly conduct post-mortems on investments, especially unsuccessful ones, to identify if issues stemmed from poor execution, market timing, or fundamentally flawed investment decisions, with the latter being the most critical to avoid.

23. Cultivate Osmotic Learning Environment

Create an open and interactive work environment, like an open-plan office, where people constantly communicate and learn from each other through osmosis, providing continuous daily training.

24. Invest in Local, Non-Exportable Assets

Focus investments on backbone infrastructure and businesses whose products or services are consumed locally within a stable country, as this minimizes exposure to geopolitical risks and cross-border trade politics.

25. Select Countries with Stable Currencies

Choose countries for investment that have large, growing GDPs, allow for operations consistent with global standards, and possess a relatively stable currency that avoids high volatility or long-term depreciation.

26. Prioritize Investment Price

Ultimately, all investment decisions, even after considering other factors like country stability or asset quality, come down to the right price.

27. Avoid Liability Risk in Insurance

In insurance, structure the business to avoid taking high risk on the liability side, instead focusing on earning returns primarily from the asset side.

28. Overcapitalize for Asset Flexibility

Overcapitalize businesses with significant amounts of equity to gain greater flexibility and unique opportunities on the asset side of the balance sheet, especially in sectors like insurance.

29. Maintain Significant Capital Reserves

Continuously overcapitalize businesses and maintain substantial capital reserves to ensure financial health and superior positioning, ready to deploy additional funds if needed.

30. Prioritize Reputation and Transparency

Actively address criticism and double down on explaining complex aspects of your business to maintain a strong reputation and transparency with stakeholders.

31. Define Success as Long-Term Relevance

Define long-term success as growing bigger and broader, becoming more relevant to clients, and consistently earning reasonable returns while protecting against downside risk.

32. Perceive Problems as Opportunities

Recognize that every problem inherently presents an opportunity, adopting a mindset that seeks out these chances for growth or advantage.

33. Spot Global Trends Early

Identify and position investments to capitalize on massive global shifts, such as digitalization, low-carbon energy, and reshaped supply chains, years before they become widely recognized.

34. Structure Deals for Resilience

Structure deals to be resilient across economic cycles and place big, bold bets that can compound steadily over time.

35. Question Market Efficiency

Do not assume markets are efficient, as securities very seldom trade at their actual value, often trading above or below it.

36. Improve Businesses for Cash Flow

Invest in businesses with the goal of making them better, which will lead to greater cash flow growth, allowing for continued reinvestment and dividend distribution to owners.

37. Target Significant Cost Improvements

Aim for substantial improvements in business costs, such as 30%, as these can significantly impact the bottom line and overall company profitability.

38. Avoid Investing Overexcitement

Recognize that investing success is not a straight line, and avoid getting overexcited at certain points in time, as this often leads to financial losses.

39. De-Risk New Builds with Contracts

De-risk new construction projects, such as office buildings or data centers, by pre-leasing or pre-contracting with tenants or clients before building, especially when demand is high.

40. Test Investments with Own Capital

Prioritize making mistakes with your own capital first before deploying client money, as maintaining a strong reputation with clients is paramount.

41. Combine Wisdom with Young Talent

Foster a culture that combines the gravitas and historical knowledge of experienced individuals with the fresh perspectives and technological understanding of smart, aggressive young people to stay agile and informed on new trends.

42. Tailor Offerings to Audiences

Structure different business entities or offerings to cater to specific investor audiences, providing tailored securities that meet their distinct investment preferences and expectations.

43. Invest in Large, Growing Economies

For significant capital deployment, focus investments on large countries with substantial GDP and growth potential, as smaller markets may not be meaningful enough for large-scale capital allocation.