Best Stock Investors
Berkshire bought its stake in the Washington Post Company, for example, in mid-1973. 11 Not only had the Post's own stock price been battered by the Nixon White House's excoriation of its investigative reporting on Watergate, that was one of the few times in postwar American history that the U.S. stock market resembled its dismal stance during the Depression. Buffett's purchase price? About a fifth of intrinsic value, an 80% margin of safety. Luck plays a major role in a day trader's portfolio; discipline plays an obvious role in Berkshire's.
Luck is an inadequate though often partial explanation for any human endeavor that entails effort. Those who succeed in their endeavors catch butterflies not by luck alone but with the help of an expertly cast net. Ben Graham drew a fine link between luck and work by saying that "one lucky break, or one supremely shrewd decision—can we tell them apart?—may count for more than a lifetime of journeyman efforts. But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplined capacity." 12
Whether they are characterized as value investors, growth investors, fundamental investors, opportunistic investors, or anything else, commonsense discipline is the unifying trait of all the super- investors who make up this barrel of monkeys. It is true that Keynes and Loeb are associated with the "skittish" school of investing, an opportunistic strategy that rapidly exploits stock market gyrations fueled by alternating bouts of fear and greed. Their short-termism contrasts with the long-term views of the "value" school associated with Graham and Buffett, yet both schools recognize the price-value discrepancy that these alternating bouts of Mr. Market's bipolar disorder create.
All these stellar investors—and many others, such as Jack Bogle, Phil Carret, Phil Fisher, Peter Lynch, the Prices (Michael and T. Rowe), and George Soros—succeed by exercising common sense. The "systems" or "formulas" employed or the labels given to them
are not important, but the quality of their analysis and the independence of their thought and judgment are.
The best investors employ a mind-set that takes account of just a few things, but those things are indispensable. Every extraordinary investor follows Ben Graham's first principle: The market does not perfectly price the business value of a stock. Warren Buffett takes that insight dead seriously by limiting his purchases to stocks that are way underpriced by the market. Both of these investment titans as well as Phil Carret emphasize the importance of avoiding bad deals, stocks that are way overpriced in the market.
These investors and other greats, such as Buffett's partner Charlie Munger, always remember that there are tens of thousands of day trading investment options available to just about anyone. To opt for one requires a strong belief that the market is giving the best deal available compared to all the others. And opportunity does knock. One way to test opportunity is to take Loeb's approach: always ask whether you would be comfortable committing a large portion of your resources to a single stock you are considering.
