58 The Business of Value Investingtion to valuation, investors need to recognize another important
part of buying securities that has more to do with temperament than
valuation.
Recognize that very rarely will you make your purchase decisions
at the very bottom. A true value - oriented investor doesn ’ t try to time
markets but instead focuses on pricing stocks. As such, you will rarely
ever buy at the absolute bottom or even sell at the absolute top. If you
are fortunate to buy at the bottom and sell at the absolute top, under-
stand that doing so involves a big dose of lucky timing. Prudent inves-
tors who devote serious time and effort to understanding and valuing
a business will be able to buy at an undervalued price and sell at a
higher price. A businesslike investment approach characterized by
a quantitative analysis of each individual company will signifi cantly20-Year Stock Market Returns
Based on Starting P/E Ratio (1900–2007)510152025300% 3% 6% 9% 12% 15%
Annual Total Return (net) over 20 YearsP/E Ratio at the start of the 20 YearsFigure 4.1 Starting Point Matters
Copyright 2005, Crestmont Research (www.CrestmontResearch.com).CH004.indd 58CH004.indd 58 9/2/09 7:06:50 PM9/2/09 7:06:50 PM