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Stocks B / Berkshire Hathaway
|Subject: Re: Is there one idea above the rest?||Date: 11/18/2000 3:08 AM|
|Author: bsilly||Number: 38125 of 229013|
My humble entry,
Buy good businesses at reasonable prices.
It sounds so obvious as to be unnoteworthy. So simple, so obvious, so difficult.
The first implication of the statement is that you must first focus on the "BUSINESS" you are purchasing, not a stock price. You must put yourself in the shoes of a business OWNER. What does the company do? How does it, or will it, earn money for you?
The second implication is that you must make a judgement of the business, and be able to identify it as "GOOD". Study the business, study the people that run it, and come to a bona fide conclusion that the business can earn an above average return, durably. What are it's strengths? Look beyond hype. See forward to the day when a company that says "We have a really cool web site that we use to sell stuff" is the equivalent of "We have a phone number - call us if you want something from our catalogue". See what businesses remain, and make more money, on that day. See what businesses will allocate that money to the benefit of you, the owner.
The third implication is that you must have some financial sense, and be able to appraise the worth of the business. Beyond this, it is only reasonable to recognize that the world is uncertain, and therefore your appraisal of value will be imperfect. The only sensible course is to purchase for a price less than your appraisal, to hedge against this fact. Thus "MARGIN OF SAFETY" could be taken as tautology in the use of the word "REASONABLE". You must have the discipline to purchase only when it can be done at your price.
The fourth, unspoken, implication is that, if your business purchase is via the stock market, you should be in a position to hold shares as long as it takes for the stock market to reflect what you already know. You come to regard stock quotes as cards held up by thousands of drunken, biased, judges who only occasionally, but inevitably, as a group, hold up the correct score.
If you can execute those four steps well, you WILL be successful.
It's a surprisingly simple truth. Anybody should be able to do it.
How come so few do?
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