Don't Lose Money Even When You're Wrong

Charlie Munger, vice chairman of Berkshire Hathaway believes that investors equipped with the right mental models can achieve long-term returns superior to their less-informed peers. One of the best mental models Fools should stick in their arsenal is the concept of backup systems.....

Final thoughts

Do your own research. Osmium Partners, a hedge fund whose flagship fund boasts 23% annual net returns since inception, requires that its investments pass a rigorous gauntlet in order to be considered a candidate. You should have your own process as well. Put together an investment thesis for yourself.

Need some ideas? Osmium's criteria include substantial net cash on the balance sheet, owner-oriented management, a dominant market share in a niche industry, and extremely low multiples of cash flow. Each additional criterion puts in place another backup system to ensure positive returns, helping to explain Osmium's ability to find multibagger opportunities in small-cap stocks. Put together an investment thesis of your own, and you'll be a better investor in the long run.

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