11

CHAPTER

Avoiding Common

Stumbling Blocks

I ’ d rather be approximately right than precisely wrong.

— Warren Buffett

Investing is by no means an exact science. In fact, a great deal

of investment analysis hinges on future assumptions about a com-

pany ’ s cash fl ow generation. It ’ s not uncommon to see different

investors use different methods to derive the intrinsic value of a par-

ticular business. But at the end of the day, most valuations hinge on

the cash fl ow generation of a business. The exceptions are special

situation investments, such as liquidations, spin - offs, or arbitrage.

All realistic investors realize that they will make many mis-

takes throughout their careers. Even though value investors are

risk averse and strive to eliminate most risk by strictly adhering to

the concept of a margin of safety, all investing entails risk. There

is always the incalculable risk that the business environment will

weaken, or as we ’ ve seen in 2008 and spilling over into 2009, the

economy can come to a near standstill and affect all businesses.

Business risk and economic risk are risks that all investors in all

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