The Business of Value Investing.pdf

42 The Business of Value Investing

a complete mental approach to investing that, if rigorously applied,

will eliminate many unforced errors in investing. All investors make

mistakes, but the most successful investors are those who are best able

to avoid the unnecessary mistakes and to avoid making the same mis-

takes twice. Also, when investors apply and commit to pursuing invest-

ing based on the six elements, they are conditioning their minds to be

more disciplined in making investment decisions, and a disciplined

approach is a much more focused approach.

A Mental Latticework

As I mentioned earlier, many value investors have come across the

individual components of this process. Warren Buffett ’ s annual

reports are littered with references to a sound investment philos-

ophy, patience, and discipline. Buffett ’ s partner Charlie Munger

often extols the virtues of patience. The key to this framework is

viewing it as a series of building blocks, or — to borrow a term

from Charlie Munger — a latticework within investing. It ’ s a lattice-

work because you can ’ t have one without the other. It ’ s ineffec-

tive to develop a good search strategy without fi rst having a sound

approach and philosophy. Similarly, you won ’ t be able to make a

big bet during moments of maximum pessimism if you don ’ t have

patience or the ability to value a business. Successful investing is

not a rigid science defi ned by one exact formula; it is a continu-

ous, evolving process of constant learning. The framework can ’ t be

learned in mere months or years but rather applied over and over

again over decades. Warren Buffett has been developing a sound

investment philosophy his entire life. The foundation of that phi-

losophy began with Graham ’ s Intelligent Investor , but Buffett has

been perfecting it for decades. Charlie Munger often has praised

Buffett as one of the “ greatest learning machines. ”

A rational approach to value investing will deliver the desired

outcome over a meaningful period of time. All too often, investors

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