40 The Business of Value Investingare the enemy of the disciplined investor. Maintaining discipline
minimizes the severity of mistakes. The key to successful investing is
not to eliminate mistakes, which are inevitable, but to minimize their
impact on the overall investment portfolio.
Investors should not take this viewpoint to mean that invest-
ing is a rigid science. On the contrary, investment is part art and
part science with a little luck thrown in on the side. The framework
to be outlined hardly suggests that investing is a rigid discipline.
Rather these elements are essential fundamentals that enable each
unique investor to succeed in his or her own way. All golf swings
are different, but attention to the essential elements of a pure golf
swing — keeping your head still, a good shoulder turn, and main-
taining plane — all serve to keep the ball fl ying accurately. Similar
to golf, the essential elements in investments all work together to
produce a consistent and effective selection strategy.
True value investing often requires that you look stupid in the
short run. Often you will own shares in businesses that are hated
by the majority. With each passing month that goes by without any-
thing positive happening, the criticisms will get louder. You must
have complete faith in your decisions or else you will be guided
by the crowd. And most important, value investing requires total
and complete independence of thought. The ability to sit still for
months while your investments do nothing and have all the “ smart
money ” berate you for having completely missed the boat requires
a very independent and emotionless state of mind. As Ben Graham
states in The Intelligent Investor :You are neither right nor wrong because the crowd disagrees
with you. You are right because your data and reasoning are
right.^3During the Internet boom of the late 1990s, Berkshire
Hathaway ’ s stock price was tested as never before under Buffett ’ sCH003.indd 40CH003.indd 40 9/2/09 11:07:04 AM9/2/09 11:07:04 AM