Limtex:
Emotions are the enemy of the intelligent investor. Greed makes people jump in at the wrong time and fear makes them jump out right when they should be buying. Fear is due to ignorance...and ignorance exists because many people view fundamental analysis as some kind of black art practiced only by those with 200 IQs. Which, of course, is absolutely wrong.
My business partner is one of the most talented, brilliant people I have known in my career. And while a big IQ helps, his great strength lies not in some esoteric mathematical talent, but rather in his ability to look at an investment and determine what questions are relevant and what questions are noise. Does he "freak out" over some auction in Brazil, or a transitory connector problem, or because some competitor reports sloppy earnings? Absolutely not. His view of Qualcomm is really pretty simple. The technology works, the stuff has been deployed in something like forty countries with more to come, QC gets a royalty on everything that gets sold, management is extremely smart and will make the right choices with regard to the manufacturing strategy, they will do the right things over time to create shareholder value, AND the economic opportunity justifies a greater market value. Unless something changes...like the company's IPR being invalidated or a newer technology displacing CDMA or Irwin and Harvey get convicted of embezzlement...unless major elements to the investment thesis change, then his view is that all this day-to-day stuff is just noise. And it is wasteful to squander intellectual capital analyzing noise.
What's the point? A skilled fundamental investor learns to quickly figure out the important questions and ignore everything else. Peter Lynch was famous for grilling company management for an hour or two and then immediately making an investment decision. In the absence of the "right questions" the world becomes a scary place...because you do not feel in control. When the stock declines, you immediately become convinced that something is terminally wrong; when the stock appreciates, you feel smart and vindicated. The emotional response however is in direct opposition to the correct investment decision. A good asset becomes better when it becomes cheaper; it becomes less attractive as it approaches fair value.
Today the stock market did a modest imitation of Wal-Mart...it lowered prices on all the "store's" merchandise. Some of the merchandise was marked down because it was flawed and too expensive to begin with; some of the merchandise is now priced to sell..a real bargain. If the market continues to mark down the merchandise, the bargains simply get better...although the emotional context becomes progressively more difficult when your portfolio depreciates.
Think about what you own and why you own it. If you really don't understand something, if the business is unfathomable or the price does make sense vis-a-vis the business value...sell it. If you understand it; if you know what it's worth and why, then shut off the damn quote monitor and relax.
Best wishes my friend...
Gregg |
