The Six Elements of Intelligent Investing 43begin searching for the next great investment without giving
serious consideration to what it is they actually are trying to accom-
plish. Every investor ’ s goal is to buy a security at one price and sell
it later at a much higher price. But this goal rarely happens in an
orderly fashion, and if your mental approach is not defi ned by a
sound investment philosophy, the odds of costly mistakes are greatly
enhanced. The path between buying low and selling high is often
littered with bumps, and a patient, businesslike approach to invest-
ing makes a huge difference.Overview of the Six Elements
The next six chapters dig deeper into this fundamental framework
beginning with the foundation of any investing approach: a sound
investment philosophy (Chapter 4 ). There can be no dispute that
after nearly a century of practice, which began with Ben Graham in
the 1920s and has been carried on by Buffett and many other value
investors, a sound investment philosophy centers around the princi-
ples of value investing: thorough analysis, margin of safety, and sat-
isfactory returns. In this book, the term “ value investing ” is used to
describe this type of investment philosophy.
With a sound investment philosophy, an effective and produc-
tive search strategy can begin (Chapter 5 ). One of the most popu-
lar questions investors get asked is: So what ’ s the next great stock?
Unfortunately, there is no one defi nitive answer and no easy for-
mula; Warren Buffett went through 10,000 pages of a dry Moody ’ s
stock manual searching for stocks. Finding investment opportu-
nities will require work and there are no shortcuts, but knowing
what to look for will make your search much more effective and
productive.
Next, you need to take the raw data from the search results
and turn them into meaningful facts and fi gures through the proc-
ess of valuation. Valuing a business (Chapter 6 ) is part art andCH003.indd 43CH003.indd 43 9/2/09 11:07:04 AM9/2/09 11:07:04 AM