The Business of Value Investing.pdf

178 The Business of Value Investing

is wrong. Yet, as is often the case in value investing, sometime it ’ s

necessary to look stupid in the short run in order to succeed in the

long run.

Remaining patient also demands an independent frame of

mind. As Klarman says, you ’ re either patient or you ’ re not. The

market can ’ t teach you patience. Reading books won ’ t instill

patience in investors, no matter how much they agree with the les-

sons laid out. Patience is essential to value investors because often

they are investing in securities that are currently out of favor in the

marketplace; often it takes many months before the market has a

change of heart. Value investors feel no remorse as they patiently

wait for the market price of their investments to catch up with the

intrinsic value of the business. Their patience is rewarded by their

knowledge that they are involved as stakeholders in a business, not

a moving stock price, and that, in time, they will be compensated

with satisfactory capital gain.

One can understand Klarman ’ s assertion that the essential char-

acteristics of value either immediately take hold in the mind of the

investor or are never truly applied. In order to make an investment

at the maximum point of pessimism, the essential characteristics

of value investing have to be seared in your mind. And it ’ s an all -

or - nothing proposition. Working backward proves this point. Before

investing in a security currently out of favor with Mr. Market, inves-

tors have to know that they are patient because it is highly likely

that the investment will take some time to reach intrinsic value. At

the same time, investors also must know when to say no, which also

means knowing when to say yes. The value of the business is what

enables investors to go from being disciplined and patient to actu-

ally investing. Before you value a business, you fi rst have to seek

it out. And before seeking out potential bargain investments, you

must establish a sound investment philosophy. There are no short-

cuts to take or areas that can be neglected. There ’ s no halfway to

value investing; it ’ s either there or it isn ’ t.

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