128 The Business of Value Investingis sound and businesslike, your winners will more than compensate
for your losers. The undisciplined investor is the one who racks up
losses similar to the fi ctitious example given earlier. Succumbing to
investment losses in this manner can mean the difference between
an above - average and a below - average investment track record.
In cases like this, be disciplined enough to walk away and search
elsewhere. Always remember that any business is undervalued at one
price, fairly valued at another, and overvalued at yet another. The
intelligent investor ’ s goal is to buy at the undervalued price, avoid
at the fairly valued price, and sell at the overvalued price. Only by
maintaining a very disciplined approach can this strategy be carried
out effectively.Discipline Affects the Price Paid, Which Determines
the Value You Get
As is often repeated in value investing, price is what you pay and
value is what you get. Once you have identifi ed a potential invest-
ment, and your data and reasoning lead you to conclude that
you have a great business run by able and honest management, you
still have to be willing to hold off if the price is not right. Amazon.
com is a wonderful business that has forever changed the way we
order books, but when it was trading for $ 75 a share, investors
were paying more than 100 times earnings. Amazon still may have
some fantastic growth potential, but at that price, you are earning
less than 1 percent return on your money and hoping that not even
the slightest hiccup occurs.
Price is the key determinant of value in investing. In investing —
and in business in general — your profi ts are made when the asset is
bought; you just don ’ t realize at the time. The price paid will deter-
mine the discount from intrinsic value received. The price paid will
determine the margin of safety an investment carries. If the stock
pays a dividend, the price paid determines the dividend yield, asCH007.indd 128CH007.indd 128 9/2/09 11:47:22 AM9/2/09 11:47:22 AM