The Six Elements of Intelligent Investing 45unnoticed: Shares in Chipotle, like the food quality, continue
to command a premium valuation. As much as I would love to
own a stake in Chipotle and ride the success of this company for
many many years to come, I can ’ t let my love for the food cloud a
rational business decision. For now I will have to continue enjoy-
ing the food and wait for a compelling opportunity. All businesses
are undervalued at one price, fairly valued at another price, and
overvalued at yet another price.
Patience (Chapter 8 ) is arguably the hardest quality for many
investors to develop. Wall Street, with its fi xation on quarterly per-
formance numbers, has defi ned patience as a period of months.
Hedge funds, with their rapid - fi re trading programs, have made
monthly returns the standard reporting metric. A business doesn ’ t
succeed or fail based on the results of a single month or quarter.
Stock prices, in the short term, typically behave in a way that may
not resemble the underlying value of the business. A businessper-
son doesn ’ t buy or start a business with the intent of selling next
month (unless offered a much higher price). As an investor in a
business, your buy - and - sell decisions should also not hinge on
monthly or quarterly expectations. I ’ ve been waiting for Chipotle
for years; until I ’ m comfortable with the price, I ’ ll have to con-
tinue to wait. A great business is not a great investment if the price
is too high.
Once you have found a compelling investment opportunity,
act on it (Chapter 9 ). Mr. Market hates bad news and uncertainty.
An intelligent investor should use this knowledge to the maximum
advantage. Many of the best bargains occur when businesses are
experiencing a period of uncertainty or diffi cult operating environ-
ment. The underlying business remains sound, but the stock price
continues to go down, causing the gap between market price and
business value to widen. Having the conviction to make a big invest-
ment during the point of maximum pessimism requires the highest
degree of independent thought and analysis. Very few investors doCH003.indd 45CH003.indd 45 9/2/09 11:07:05 AM9/2/09 11:07:05 AM