Have the Discipline to Say No 141selling at signifi cant discounts to intrinsic value, anchoring on a set
price often causes more harm than good as it leads to many missed
opportunities.
Indeed, prices do matter. A 12 percent loss is much more
severe than a 6 percent loss. But comparing the expected gains if
the security appreciates with the potential losses confi rms that if an
investment is made in a quality company with a comfortable mar-
gin of safety, price anchoring can do more harm than good. One
fi nal note: The percentage difference between paying $ 32 or $ 34
(6.2 percent) a share versus paying $ 9 or $ 11 (22.2 percent) can be
very signifi cant in determining overall investment returns. While all
investments should be made with respect to price paid versus intrin-
sic value received, price differentials are meaningful with smaller
numbers.
Investors all too often make investing much more diffi cult than
it really is by spending far too much time trying to time every single
detail. When Buffett says that investing is simple but not easy, he
means that many investors pay far too much attention to variables
and factors that don ’ t affect the overall future value of the business
as much as they think they do.
Underpinning the aforementioned assertions, of course, is
the assumption that investors have diligently researched the secu-
rity and are investing with a comfortable margin of safety. If you
determine that the intrinsic value of a stock is $ 45 a share, there
is no benefi t gained by waiting to invest at $ 20 a share versus $ 22
or even $ 24 with respect to the potential opportunity loss that mayTable 7.3 Folly of Anchoring On a Price
Initial Share Price Return (P $60) Return (P $50) Return (P $30)
$32 88% 56% –6%
$33 82% 52% –9%
$34 72% 47% –12%CH007.indd 141CH007.indd 141 9/2/09 11:47:27 AM9/2/09 11:47:27 AM