As noted above, I’m solidly in the “I Don’t Know” camp. Others surely know much more than I do – but there’s also a crowd that simply can’t handle the potential regret of missing on Apple once again. For those people, Warren Buffett’s words should provide some much needed advice: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing… The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
As always, you don’t have to do anything. You can sit quietly and twiddle your thumbs, waiting for the next pitch to come across the plate. This sounds so simple – yet the aversion of regret chews people up inside (“I’ve completely missed Apple’s run up over the last decade – I won’t miss this chance to get in.”). Patience is much easier to talk about than to practice.
Value investing, by its very nature, is closely tied to market (security) timing – while the intrinsic value piece of the equation is relatively stable, the market valuation is often jumping sporadically from one day to the next; often, this leaves us focusing on the wrong side of the equation. This is inadequate – if you can’t even calculate a broad estimate of intrinsic value, you should move on.
From my perspective, intelligent capital allocation is best kept in check with two tools: an investment journal and a buy list. Once a security has been analyzed, you should set a price at which you would be willing to make the holding a sizable piece of your portfolio, regardless of how far off the current price may be (I recently added a buy target of $55 for a company trading around $85).
This approach, by its design, has two critical buffers – first, it requires that you have at least analyzed a company before you consider purchasing it (if it’s not on the list, no matter how cheap it may be, you cannot act without thorough analysis). Second, you will think twice before adding a name and a buy price if you are set on staying true to your word and buying regardless of the noise around the company or in the market as a whole if your target level is breached (assuming the fundamentals are unchanged, as noted in your original write-up and updated in your journal over time).
Emotions can stymie intelligent decision making; avoiding the stranglehold all together is optimal. Often, as with Apple, companies come under great fire when they reach a level where value investors might be interested. You should do your research outside of the storm – or consider waiting for brighter days ahead – to avoid the behavioral biases that we’re all susceptible to.
About the author:
I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over many years.