Sine qua non: Latin, or condicio sine qua non (plural: condiciones sine quibus non) refers to an indispensable and essential action, condition, or ingredient. It was originally a Latin legal term for “[a condition] without which it could not be,” or “but for…” or “without which [there is] nothing.” Source: Wikipedia.
Here are the 4 basic ingredients of successful investing from the excellent book by Martin J. Whitman and Martin Shubik – The Aggressive Conservative Investor (2005 edition):
1. The company ought to have a strong financial position, something that is measured not so much by the presence of assets as by the absence of significant encumbrances, whether a part of a balance sheet, disclosed in financial statement footnotes, or an element that is not disclosed at all in any part of financial statements.
2. The company ought to be run by reasonably honest management and control groups, especially in terms of how cognizant the insiders are of the interests of creditors and other security holders.
3. There ought to be available to the investor a reasonable amount of relevant information, although in every instance this will be something that is far short of “full disclosure”—the impossible dream for any investigator, whether activist, creditor, insider or outside investor.
4. The price at which the equity security can be bought ought to be below the investor’s reasonable estimate of net asset value.
These four elements are the sine qua non for an investment commitment using the financial-integrity approach, because their presence results in a minimization of investment risk. But they are not simply by their presence sufficient reasons for an investment commitment. The absence, however, of any one of them is reason enough to forgo any passive investment, regardless of how attractive it might appear based on other standards.
Such investors tend to have a degree of confidence in their commitments that just cannot exist for those who are significantly affected by day-to-day or even month-to-month stock market fluctuations, or who believe that values are determined by elements based on “soft,” or always shifting, factors, such as earnings estimates, price–earnings ratios and technical market conditions. This confidence factor can afford significant rewards in the usual (though far from universal) investment instance where there has been no fundamental deterioration in the position of companies with strong finances whose common stocks are part of the investor’s portfolio. First, only an investor confident in the fundamental merits of a security finds it relatively easy to hold or average down at times when prices are depressed because there is a bear market, because earnings have declined or for whatever reason. Second, if there is confidence in fundamental merits, it becomes relatively easy to establish positions in common stocks at attractive prices when markets are depressed because of events such as panics or tight money, or because of beliefs that near-term outlooks are poor.
Isn’t that great!
PD: Other interesting investing books.