The Business of Value Investing.pdf

The Six Elements of Intelligent Investing 39

intelligent way to go. But if you ’ re a serious investor and are devot-

ing serious time to stock selection, then concentration makes the

most sense. The wealthiest people on the planet have derived their

wealth from a single business: Warren Buffett from Berkshire Hathaway;

Bill Gates from Microsoft; Lakshmi Mittal from ArcelorMittal; and on it

goes. It ’ s silly to think that just having a few eggs in your basket is riskier

than having more. If you know the business cold, why put money in

something else that you don ’ t know as well? As Buffett suggests, it is bet-

ter to have a few eggs in your basket and watch them closely than to

have many and risk some breaking.

The Sum of Its Parts: A Fundamental Framework

In observing great investors, I ’ ve discovered that their investing

approach hinges on six elements that comprise the entire invest-

ment process. These six elements always go together in select-

ing investment candidates; in other words, you can ’ t have a good

search strategy (Element 2) without fi rst having a sound investment

philosophy (Element 1). Just like crawling before walking, you need

to know what you ’ re looking for before beginning to look. Jumping

ahead and investing without understanding what it is you ’ re look-

ing for often will send you into a crash.

At fi rst, the framework looks obvious; all of the individual pieces

have been discussed and dissected in other investing literature.

Here, it ’ s the total framework that counts, not the individual com-

ponents. This is not a checklist that you go through every time you

want to pick an investment but rather six essential elements that

should truly exist if you are a value - seeking investor.

It is surprising how few “ value investors ” actually invest with this

mental framework in mind. Referring back to Graham ’ s defi nition of

an investment operation, relatively few investors truly take the time

to analyze the business and determine whether the price is right so

that a satisfactory return is achieved. Investing in this manner is not easy

to do. It requires discipline and no emotional attachments. Emotions

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