172 The Business of Value Investing
of reduced valuations for the vessels. Simply assigning the stated
book value of $ 49 a share was not satisfactory in order to assign a
conservative book value for the company. In the case of Johnson
& Johnson, over 100 years of profi tability during various economic
conditions was in itself a satisfactory condition that the company
was still a suitable investment.^7
Key Takeaways
- Investment in stocks should be made with a long - term orientation. In
the short run, market prices are affected by the votes of the market partici-
pants. In the long run, stock prices will catch up with the fundamentals of
the business. - Along with reduced trading mistakes, a patient investment approach
minimizes transaction costs. - The level of cash in a portfolio should be affected by the availability of
bargain investments. - Some of the market ’ s greatest benefi ts — liquidity and establishment of
prices — can also be a source of great loss to investors who fall prey to the
unnecessary noise they often create. - General undervalued investments arise from two situations: market
prices below private sale value or buying growth businesses at reasonable
prices. Both situations allow for an investment to be made at prices suffi -
ciently below intrinsic value.
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