Warren (AI) and I are always talking about writing a book so I figured this might make a good start.
As our Live Chat Members know, Warren can teach you anything at any time so I’m thinking not so much a book as perhaps releasing a version of Warren who is optimized towards teaching stock and options trading strategies. Let me know what you think as this is very much a work in progress in which we’re trying to codify PSW’s Investing Strategies.
Over decades in M&A consulting and corporate turnarounds, I’ve sat across the table from executives in crisis, analyzed companies down to their wiring, and seen firsthand what separates the survivors from the casualties. That experience now fuels how we build our portfolios at PSW.
When we select stocks for our Members, we apply the same scrutiny I once used to decide whether a company was worth acquiring, investing in, or saving. We look beyond the balance sheet to the people, the culture, the strategy — and the cracks. We ask the uncomfortable questions, check the unvarnished sources, and look for the competitive edge that can survive the next storm – much like the one we’re experiencing now.
Even with all that experience, we’re still wrong sometimes (almost 30% of the time, in fact). Investing is not prophecy — it’s probability. The goal is to make our odds so strong, and our mistakes so survivable, that over time we keep stacking the deck in our Members’ favor.
To that we add our Income-Producing Strategies that turn 2/3 of those losing trades into winners anyway and THAT is the real secret sauce at PhilStockWorld – we teach our Members to Be the House – NOT the Gambler, which VASTLY improves our chances of winning on every trade – and also teaches us which trades to avoid – because the numbers, very simply, don’t work.
What follows are 30 principles — hard-earned in boardrooms, on factory floors, and in the markets — that guide how we choose the “best of the best” for PSW portfolios.
Section 1 – Thinking Differently & Seeing What Others Miss
PSW Core Principle: “We seek value where others see noise.”
1. Be a Skeptic
At PSW, skepticism is not cynicism — it’s discipline. Every investment story has weak points, and our job is to find them before committing capital. We approach due diligence by asking: Where does this break? This is Graham’s margin of safety applied not just to numbers, but to narratives. In a market addicted to consensus thinking, skepticism is your best form of risk control.
2. Volatility Isn’t Your Enemy
Volatility is the market’s way of telling you something’s on sale or in danger. Investors who equate volatility with risk miss the deeper truth: true risk is permanent capital loss. Howard Marks reminds us, “You can’t predict, but you can prepare.” We use volatility as an entry point, not a reason to run.
3. Focus on the Tail
Correlation is overrated until the tails wag the dog. Being “uncorrelated” in quiet markets is fine, but being uncorrelated during a crash is transformative. This is why PSW maintains tail-risk hedges — insurance you hope never to use, but that buys you the freedom to take risk elsewhere. Dalio built a career on “protecting against what you don’t see.” We agree.
4. Have the Courage to Make Mistakes
Risk management is about eliminating unnecessary risks, not eliminating all risk. As Buffett says, “You only learn who’s swimming naked when the tide goes out.” Mistakes will happen — the key is to make them survivable, and to make them for the right reasons.
5. Just Say No
Most of your worst trades will come from saying “yes” when you should’ve passed. The regret from a missed opportunity fades; the regret from an avoidable loss sticks. Patience is not passive — it’s a position.
6. Basis Kills
Two positions that look different but move together can double your risk without doubling your reward. We’ve seen “hedged” portfolios get gutted because longs and shorts were effectively the same bet in disguise. Understand correlation before correlation understands you.
7. Don’t Be Afraid to Run Into Fires
Sir John Templeton famously said, “Buy at the point of maximum pessimism.” Market dislocations create the best deals, but only for those willing to step in when others run away. The caveat: go in with a plan, not bravado.
8. It’s Only a Great Investment if You Can Hold It
The best idea in the world is worthless if you’re forced to liquidate at the wrong time. Stress test the business, financing, and counterparty risk, not just the trade. Many 2008 casualties were right on the thesis but wrong on the liquidity.
9. The Opposite of a Long Isn’t a Short
Great short sellers think differently. They don’t just “invert” long ideas — they hunt frauds, fads, and structural failures. Expecting a skilled long-only manager to run a winning short book is like asking a sprinter to win a marathon.
10. Don’t Make Logical Decisions Based on Flawed Information
The inputs determine the outputs. In market extremes, the noise-to-signal ratio skyrockets. Take the time to verify data quality and be aware of your own biases. As Soros warns, “Markets are almost always wrong in the short term — the trick is knowing when they’re wrong enough.”
This is the mindset layer of investing — the lens through which every idea is viewed. It’s not about what’s hot; it’s about what’s true. Every point here is a guardrail that keeps us from being seduced by market narratives and ensures that, when we act, it’s with clarity and conviction.
Section 2 – Mastering the Art of Due Diligence
PSW Core Principle: “We don’t just buy stocks, we buy the business — and we’ve been in the boardrooms.”
11. References Matter — Even in Public Companies
In M&A and corporate turnarounds, I learned that what management says in the boardroom is often very different from what the rank-and-file experience on the ground. We apply the same principle to stock selection: analyst calls, industry contacts, supplier chatter — these “references” tell us if management’s narrative holds up in reality. It’s not just investor relations spin we’re after; it’s operational truth. “Trust, but verify,” as Reagan said.
12. Culture is King
I’ve seen great companies implode because of bad culture. “Culture eats strategy for breakfast” is how Peter Drucker put it. Toxic leadership eventually seeps into customer service, product quality, and decision-making. At PSW, we scan for cultural health in ways the market often ignores — turnover rates, Glassdoor reviews, employee litigation, whistleblower activity. A strong culture can survive market storms; a bad one will sink the ship from within.
13. The Truth is Out There — If You Know Where to Look
In turnarounds, I’d find the truth in the least obvious places — talking to warehouse managers, junior accountants, even competitors. When we research a stock, we dig into trade publications, supplier reports, and local business press. You’d be surprised how much of a company’s real trajectory is hiding in plain sight, just not in the earnings release.
14. Control the Meeting Before It Controls You
When I meet management — whether in the past as a consultant or now as an investor — I set the agenda. I want to hear about the weaknesses, the risks, the things they don’t want to talk about. In stock investing, this translates to going into earnings calls and investor days with a prepared set of red-flag questions — and listening as much to what’s avoided as to what’s answered.
15. Read Between the Lines
In a turnaround, you get good at decoding corporate-speak. “Repositioning our product line” might mean “sales are collapsing.” As investors, we parse 10-Ks, earnings transcripts, and guidance changes with the same suspicion. Markets take statements at face value; we read the subtext.
16. Don’t Buy the Portfolio, Buy the Process
Turnaround work taught me that current results can be misleading — sometimes a good quarter is just cost-cutting that isn’t sustainable. At PSW, we evaluate how a company makes money and whether that process is durable. A temporary bump is not a long-term thesis. “Process beats talent when talent doesn’t follow process.” – Nick Saban
17. Focus on the Prize
Charisma doesn’t equal competence. I’ve met CEOs who could sell ice to Eskimos and still run their company into the ground. In stock selection, we separate presentation skill from operational skill. We care about execution, not charm.
18. 1 + 1 = ½
In corporate structures, divided leadership is a warning sign — no clear accountability means slower response to crises. As Lincoln said “A house divided against itself cannot stand.” When analyzing companies, we avoid those with murky reporting lines or power struggles at the top. The market underestimates how dangerous leadership gridlock can be.
19. Avoid Casinos
I’ve watched companies gamble on fads or over-leveraging themselves, mistaking short-term luck for long-term strategy (MSTR springs to mind at the moment). We avoid businesses chasing hot trends without a competitive moat. If a company’s growth is a roll of the dice, it’s not going in our portfolio.
20. Confidence vs. Hubris
The best executives — and the best investors — can admit when they’re wrong and change course. The worst double down on bad ideas until it’s too late. We look for management teams that pivot intelligently. And yes — even after all our digging, we still get some wrong. But we cut our losses when the facts change.
Our members know that every stock in our portfolios has been through the same scrutiny I once gave to companies we were buying, fixing, or selling. We aren’t just chasing numbers — we’re looking at the whole organism: leadership, culture, competitive position, and operational resilience. It’s the combination of hard data and on-the-ground instincts that helps us build portfolios of “best of breed” companies — knowing full well that even the best process doesn’t guarantee perfection, only the best odds.
Section 3 – Evolving With the Market
PSW Core Principle: “Adapt or die — the market doesn’t wait for you to catch up.”
21. Dinosaurs Go Extinct
As a Corporate Consultant, I watched strong companies fade into irrelevance because they didn’t adapt to changing markets. Technology shifted, customer preferences evolved, and their edge eroded. At PSW, we apply this same lens — a company without a plan for innovation is a slow-motion bankruptcy. We prefer businesses that invest in R&D, reinvent products, and anticipate disruption before it happens. “It is not the strongest of the species that survives, but the one most responsive to change.” – Charles Darwin
22. Success Can Be Dangerous
Turnarounds taught me that companies often stumble right after big wins. Complacency creeps in, decision-making slows, and competition catches up. In our stock selection, we’re wary of companies resting on their laurels — especially market leaders with no clear plan to defend their moat.
23. Climb Through the Side Window
In the corporate trenches, solving impossible problems often meant finding non-obvious solutions — a new distribution channel, an overlooked market segment, a restructured deal. The best public companies do the same: they innovate around obstacles. We like CEOs who can find unconventional paths to growth when the front door is locked.
24. Don’t Sweat the Small Stuff
Stephan Covey said: “The main thing is to keep the main thing the main thing.” In turnarounds, you learn quickly to focus on the big levers — the changes that actually move the needle. We do the same in our portfolios. Rather than obsess over every quarterly wiggle, we watch the structural drivers: market share trends, pricing power, debt structure, capital allocation. Those determine the long-term winners.
25. Write the Playbook in Advance
Crisis management only works if you’ve already thought through the moves. Before recessions or sector shocks hit, we’ve already discussed how each position might respond and whether it’s a buy, hold, or sell. This preplanning comes straight from corporate crisis playbooks — the goal is to act fast without panicking. “By failing to prepare, you are preparing to fail.” – Benjamin Franklin
26. If You’re On Time, You’re Late
The best deals in M&A were the ones we found before the rest of the market woke up. In stock investing, we aim to identify emerging opportunities early — before the valuation gets crowded. That means studying industry inflection points, not just company earnings.
27. Maintain Your Competitive Edge
Companies that can’t define their edge are usually losing it. We ask: “What can this business do better than anyone else, and can they keep doing it?” Drucker puts it “If you can’t measure it, you can’t manage it.” If the answer is unclear, we move on. As investors, our edge is the ability to combine deep operational analysis with market insight — and we constantly refine that skill.
28. Stay in the Room
“Eighty percent of success is showing up.” – Woody Allen. In dealmaking, relationships kept us at the table when others were shut out. With public companies, maintaining access means following management closely, participating in calls, investor days, and sometimes quietly visiting facilities or trade events. You can’t influence management as a shareholder, but you can understand them far better if you stay engaged.
29. “Everyone Has a Plan Until They Get Punched in the Face” — Mike Tyson
In business turnarounds, we called it “the Monday morning problem” — the thing you didn’t expect that forces you to rewrite the week. Public companies face the same shocks. We focus on management teams with the composure to pivot under pressure, because their resilience becomes ours.
30. Learn From Other People’s Mistakes
In M&A, we’d study why a similar company failed before buying into a new one. With stocks, we track sector blowups, accounting scandals, supply chain failures — and then check our portfolio for similar vulnerabilities. The cheapest lesson is the one you learn from someone else’s disaster. “Smart people learn from their mistakes. Wise people learn from others’ – Me
Markets evolve, industries transform, and yesterday’s winners become tomorrow’s cautionary tales. The difference between long-term success and slow decline is adaptability. At PSW, we combine the Operator’s instinct for spotting change with the Investor’s discipline in acting on it — ensuring our portfolios aren’t just built for today, but for the market that’s coming.
At PSW, we aren’t traders chasing heat. We are Analysts, Operators, and Investors who evaluate a stock the way an M&A team evaluates a company: deeply, painfully, honestly. These 30 principles aren’t just rules — they’re habits that shape everything we do.
