Someone who reads the blog wrote me this email:
In your recent article you wrote:
"Intrinsic value is a guess. Buying is the belief. You don’t need to
use a lot of math to prove exactly what something is worth. You just
need to present a convincing case for buying it."
Interesting observation. I've seen a few YouTube vids with Bill Ackman
in them. The interviewers have sometimes pressed him for what he
thinks a stock is worth. He never gives a numerical answer. I get the
distinct impression that he never has a definite intrinsic value X
when he buys a stock; only that a stock is "clearly undervalued" at a
current price. As Ben Graham would say: you don't have to know a man's
weight to know that he is fat.
All the best,
I think there are really 4 questions you answer before buying any stock:
- Is it safe?
- Is it a great business?
- Am I getting a great price?
- Can I hold this stock for as long as it takes?
The ideal stock would get 4 “yes” answers.
The 5 Japanese net-nets I own do not get 4 “yes” answers. But I made sure they passed questions #1, #3, and #4.
A lot of differences in style come down to how you answer these 4 questions. Someone emailed me saying he thought Mohnish Pabrai was more of a Ben Graham investor than a Warren Buffett investor.
Not really. Graham was obsessed with question #1. He wanted to know a stock was safe. Pabrai cares less about #1 and more about #3. Pabrai’s overwhelming focus is on getting a great price.
Graham wanted a great price. But safety always came first.
There are stocks Pabrai has owned that Graham wouldn’t. Nothing wrong with that. Different people invest differently.
We all rank these 4 questions a little differently. We obsess about one. And our standards are a little too loose on one of the others.
But I think most stock decisions come down to these four questions.
If you can answer those questions – you don’t need an exact estimate of intrinsic value.