Investing well requires a lot of skills: a knowledge of valuation techniques, an understanding of the language of accounting, as well as having the correct psychological makeup. However, there is another important component to investing well, one that unfortunately isn’t under the control of the individual investor: being in the right place at the right time. Investment windows are only open for so long, and one needs to have both the means and willingness to pull the trigger when the time comes.
Opportunities don’t last that long
At the 2008 Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) annual shareholder meeting, Charlie Munger (Trades, Portfolio) was asked to comment on investing during market downturns. At the time, the subprime mortgage crisis had caused significant dislocations in capital markets, leading to distorted prices in many different areas. He said:
“When municipal bonds got dumped on margin calls, they suddenly got mispriced. The dislocation was very brief, but also very extreme. So if you can’t think fast and act resolutely, it does you no good. You’re like a man standing by a stream, trying to spear a fish and the fish only comes once a week, or once a month, or only once every 10 years. And you’ve got to be there to throw that spear fast before the fish swims on. It’s a pretty demanding business”.
Warren Buffett (Trades, Portfolio) added that similar dislocations had happened after the collapse of the hedge fund Long Term Capital Management in 1998 and in 1974 as well.
It’s interesting that even though Munger and Buffett like to hold their investments for as long as possible, they have often had to make decisions relatively quickly. The window is just not open for that long. A good example was the recent market rebound from the March lows - investors who spent too much time thinking about what to do likely missed out on the rally.
Activist investor Bill Ackman (Trades, Portfolio) has said that the best investment he has ever done with his Pershing Square hedge fund only took four hours to discuss and implement. As such, he acquired a large stake in a spinoff of Wachovia Corp. Interestingly enough, this also took place during the 2008 financial crisis, which just goes to show that when there are market-wide dislocations, opportunities begin to pop up everywhere. You just need to know where to look and be willing to take the chance on something cheap.
Disclosure: The author owns no stocks mentioned.
Read more here:
- The Value Investor’s Handbook: The Price-Earnings to Growth Ratio​
- Jeffrey Gundlach Weighs In on the Recent Market Recovery
- What Cash Flows Can Tell You About Income​
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