The Business of Value Investing.pdf

126 The Business of Value Investing

A particular security is selling in the market for $ 25 a share. The

strong fundamental qualities of this security are well known, and as a

result, the stock has typically traded at a fair to overvaluation. At the

current price of $ 25 a share, the stock is indeed slightly above fair

value. Eager to buy, an investor is on constant watch for any dip in

stock price, but the dip never comes. Instead, over the next few weeks

the stock seems only to go up in price and is now at $ 35. Not wanting

to miss out on the continued rise, the investor rushes to buy in. In the

next few weeks, the stock is back at $ 25 and the investor, an able and

bright fellow, feels like the dumbest man on the planet. His downfall

had nothing to do with intelligence. Instead, it had everything to do

with emotions dictating the investment decision. Whether the secu-

rity will trade above his purchase price a year from now is irrelevant.

Even if that happens, it ’ s just as foolish to dismiss the investment as

an intelligent one because the investment process was manipulated

by emotional decision making. Next to taking a loss, nothing is more

painful than the aforementioned chain of events. Learning to say no

until the price is right is of paramount importance.

Most investors are smart; few, however, are disciplined enough

to say no and move on or, more important, be patient. This chapter

illustrates and explains the benefi ts and consequences of an undis-

ciplined investment approach versus an investment approach char-

acterized by discipline. Very few activities in life can be practiced

successfully without some degree of discipline. Being disciplined

requires you to think independently and ignore crowd psychology.

Discipline requires investors to be confi dent in their research and

analysis and be prepared to receive criticism from all angles. Yet

disciplined investors clearly realize that investment success comes

from sticking to their methods and not participating in crowd folly.

In Investing, Discipline is Everything

Rarely do you fi nd a fi eld where the level of intelligence is not

directly proportional to long - term success. Investing in the stock

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