At the Berkshire annual meeting last year or the one before last (after going so many years in a row, they are beginning to all meld together), Charlie extolled the virtues of (or, rather in Charlie-style, sternly warned against the trapping of “doing the opposite”) “saying no quickly” to investments that do not make sense.
The first order or direct benefit of doing so is obvious - it saves time and our time, with the ba-zillions of investments out there is very precious.
It dawned on me recently, notwithstanding this first order benefit, that there is a crucial second order benefit to saying no quickly. I was turning the pages of a prospective investment that a respected colleague had mentioned was of interest. The “of interest” part had emerged from a screening tool, was obvious, and was real. The company in question was trading at a meaningful discount to net tangible asset value, with useful, salable assets. This is a good recipe for us hate-to-losers. I worked on.
What did I find and find fast? The company was, in fact, monetizing its good assets; sounds positive at first blush. In another 5 minutes, however, I was to learn that they were intending on redeploying the proceeds in a start-up internet venture. 5 minutes beyond this discovery, I learned they were being investigated by the federal government. At this point, I remembered Charlie’s wisdom and said no.
Saying no certainly saved me time. Upon reflection, however (and here comes the second order benefit), it prevented me from polluting my mind with unsubstantiated, and unjustified hope for a juicy investment gain. The stock possessed a key factor that I like (a lot!) - downside protection in the form of a solid net tangible asset value. This alone got me salivating, got me hoping. But, in finding out more, it was abundantly clear that the company, with reasonably high probability, was on a glide path to asset destruction and, extremely importantly as well, was managed by people of questionable character. To have worked on, calculated an appropriate discount, investigated management’s plan and honesty, thrown them on the screen to monitor and update, to have hoped for a killing out of this stock would have polluted my thinking about other earnings-power or discount-to-net-assets companies of much higher quality and character. Saying no quickly helped me to move on to better pursuits and helped me to focus on situations of comparable return “juiciness” and much better long-term repeatability.
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The first order or direct benefit of doing so is obvious - it saves time and our time, with the ba-zillions of investments out there is very precious.
It dawned on me recently, notwithstanding this first order benefit, that there is a crucial second order benefit to saying no quickly. I was turning the pages of a prospective investment that a respected colleague had mentioned was of interest. The “of interest” part had emerged from a screening tool, was obvious, and was real. The company in question was trading at a meaningful discount to net tangible asset value, with useful, salable assets. This is a good recipe for us hate-to-losers. I worked on.
What did I find and find fast? The company was, in fact, monetizing its good assets; sounds positive at first blush. In another 5 minutes, however, I was to learn that they were intending on redeploying the proceeds in a start-up internet venture. 5 minutes beyond this discovery, I learned they were being investigated by the federal government. At this point, I remembered Charlie’s wisdom and said no.
Saying no certainly saved me time. Upon reflection, however (and here comes the second order benefit), it prevented me from polluting my mind with unsubstantiated, and unjustified hope for a juicy investment gain. The stock possessed a key factor that I like (a lot!) - downside protection in the form of a solid net tangible asset value. This alone got me salivating, got me hoping. But, in finding out more, it was abundantly clear that the company, with reasonably high probability, was on a glide path to asset destruction and, extremely importantly as well, was managed by people of questionable character. To have worked on, calculated an appropriate discount, investigated management’s plan and honesty, thrown them on the screen to monitor and update, to have hoped for a killing out of this stock would have polluted my thinking about other earnings-power or discount-to-net-assets companies of much higher quality and character. Saying no quickly helped me to move on to better pursuits and helped me to focus on situations of comparable return “juiciness” and much better long-term repeatability.
Also check out:
