The Business of Value Investing.pdf

Have the Discipline to Say No 139

re inforce the idea that successful value investing always emphasizes

the process fi rst and the outcome second. The value - seeking inves-

tor doesn ’ t time stock prices but instead prices stocks.

Successful investing is about one thing: buying good businesses

for less than they are worth. The movement of the stock price is

only a tool to aid investors in doing this, nothing more.

Unveiling Investor A: Warren Buffett

Back to our tale in the last section: What if I told you that Investor A

was, at one point, Warren Buffett? Indeed, in 1973, Buffett began

buying shares in the Washington Post for Berkshire Hathaway.

Based on a historical stock chart in The Warren Buffett Way by Robert

Hagstrom,^2 shares in the Post declined after Buffett ’ s purchase, and

it took more than a year for the company ’ s stock price to surpass

Buffett ’ s purchase price.

Regardless, Buffett is just an example of the bigger picture

for investors. All too often, the terms “ luck ” and “ skill ” are tossed

around the investment fi eld inaccurately. The truth is that invest-

ment skill will always lead to certain moments of luck, but in the

long term, luck simply cannot last long enough to produce a con-

sistent, profi table result.

The Investor Bs of the world are often considered to be more

skillful than the Investor As. That ’ s a misguided view. In this case,

both classes of investors have skill. The point to understand is that very

few investors will ever buy at the bottom. Investor B, while a skillful, pru-

dent investor, merely got lucky by purchasing a security at the bottom.

Investor B realizes this and understands that in the future, he will

miss the bottom more often than not. In both instances, he is invest-

ing based on intrinsic value assessments, not on market volatility.

Investor A also realizes that she is no less skillful an inves-

tor because Mr. Market has suddenly decided that the business

is “ worth ” half of what she paid. In fact, Investor A welcomes the

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