44 The Business of Value Investingpart science; no two investors will ever value a business equally.
Regardless, you have to understand the business to value it appro-
priately. Without coming up with a value, you won ’ t be able to
decide whether to walk away, invest, or sit still. One chapter can-
not teach you everything you need to know about valuing a busi-
ness. Businesses are evolving creatures, and all valuations hinge
on numerous assumptions. Understanding the limitations of those
assumptions is a vital component of evaluating the worth of a busi-
ness. The focus of Chapter 6 is not only on how to value a business
but why the process of valuation is critical.
Once you ’ ve valued the business, the next critical step is to
detach all emotion from businesses and make all buy - and - sell deci-
sions on facts (Chapter 7 ). The discipline to say no is as important
as any quantitative skill that you may possess. Success in investing
rests on more than simply a high IQ or razor - sharp mathematical
skills. Without discipline to hold you back and resist the short - term
temptation of market gyrations, the best analytical work still can
lead to poor results.
Maintaining the discipline to say no requires two abilities.- You have to separate any emotional attachment to stocks.
- You have to always have a clear distinction between value
and price.
One of my favorite businesses is Chipotle, a fast - casual gourmet
Mexican food restaurant chain. The quality of the food is excel-
lent, and I eat at Chipotle any chance I get. (As of this writing,
Chipotle has yet to open up shop in my hometown of Athens,
Georgia. Steve Ells, if you are reading this, please look at the
Athens market!) Every time I visit a Chipotle, the lines are deep,
the restaurants are clean, the service is friendly, and the food is
always tops. Without a doubt, Chipotle is a wonderful business
with a fantastic future. Unfortunately, this success has not goneCH003.indd 44CH003.indd 44 9/2/09 11:07:04 AM9/2/09 11:07:04 AM