- Have the discipline to say no.
- Practice the art of patience.
- Have the courage to make a significant investment at the
point of maximum pessimism.
Successful investors take the above six elements and incorpo-
rate them in their investment decision making. The order is signifi -
cant. Potential investors should not even attempt to seriously invest
without fi rst developing a sound investment philosophy. Developing
such a sound philosophy — loss avoidance, risk aversion, avoidance
of crowd psychology, and staying within one ’ s circle of compe-
tence — is the fundamental building block for everything going for-
ward. A successful and fruitful search strategy won’t succeed unless
it incorporates a sound investment philosophy. Going down the
list, it becomes apparent that one element cannot be successfully
applied without the one preceding it.
But as a whole, these elements come together to create the
essential mental framework that is found inside the most successful
minds in investing.
In Chapters 1 and 2 , the focus is on the two ways to approach
any investment opportunity. First, investors should look at stocks as
a fractional interest in an entire business. The stock is the instru-
ment that is bought; the business is the entity you own and will
determine your long-term investment outcome. Investors often
confuse this distinction, the result of which leads to expensive and
unnecessary investment mistakes.
Chapter 3 gives an overview of the six elements, with Chapters 4
through 9 each devoted to a single element. Chapter 10 crystallizes
the thesis of the book by examining three investment case stud-
ies, and Chapter 11 concludes with reasons for why many investors
stumble time and time again. Finally, I conclude with a chapter on
how to create an investment partnership. I thought long and hard
about adding this chapter to the book but decided to write it afterIntroduction xixflast.indd Sec1:xixflast.indd Sec1:xix 9/2/09 10:59:03 AM9/2/09 10:59:03 AM