The Business of Value Investing.pdf

Have the Discipline to Say No 131

In one sense, this may indeed be very true. It will require far more

capital and investor interest to add the $ 70 billion in market value

that would be needed to double the share price of ConocoPhillips;

far less capital would be needed to move shares from $ 2 to $ 4. The

danger in thinking this way is that the approach is no longer of that

of investing but of speculation.

We have all heard investors who rationalize that when a stock

price gets so low, it surely cannot go any lower. Thinking about a

stock in this manner is misguided and usually leads to fi nancial

pain. Stock prices should always be thought about in relation to

intrinsic value and degree of discount offered from intrinsic value.

After all, until a stock price has reached zero, it always can go lower.

It is crucial to realize the element of uncertainty in investing. The

market hates uncertainty; in most cases, the low price due to uncer-

tainty is justifi ed. In some cases, though, the uncertainty leads to a

price level that offers tremendous value. The goal of the intelligent

investor is to exert diligent effort in understanding and valuing the

specifi c situation. If that is not possible, the investor should aban-

don the security until he or she has a better view of things.

The notion of price to value with respect to discipline cannot be

overemphasized, especially when we are talking about money and

Wall Street. Wall Street has turned the investment profession into

one dominated by egos motivated by who can accumulate the most

in the shortest amount of time regardless of the soundness of the

approach. If you are not participating in the moneymaking opera-

tion of the time, you ’ ve lost your touch. The mortgage and credit

fi asco that imploded in the fall of 2008 with the fall of Bear Stearns

and the bankruptcy of Lehman Brothers illustrates exactly what can

happen when a disciplined approach takes a backseat to emotion

and envy.

Eager to exploit the abundance of credit and rising property

values, fi nancial institutions raced each other to extend the most

credit. Whether it was a storied Wall Street institution or a newly

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