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October 11, 2007 – Comments (0)

I just came off reading a pretty interesting interview by Bill Mann on the topic of investor bias. Pretty entertaining stuff. Goes to show that sometimes truth is stranger than fiction.

So I thought I would share some thoughts on what was one of the better books that TMFTomG has recommended in Hidden Gems titled Value Investing with the Masters by Kirk Karanjian.

Prior to reading it, I have to admit that I was unaware that I had a rather simplistic view of concept value investing and how it's applied. Didn't sound like rocket science to me (ha!).

It was really one of the books that hit me in the head because it clearly showed that value investing was not always about long term buy and hold but can be applied in several different ways. About 20 different ways in fact.

I thought that Monish Pabrai explained it pretty good by saying if you see a fair company valued at 10 which you believe it to be worth 20, it's worth consider buying. The problem is, it's a fair company. If the stock were to climb up to 20 within 3 months, suddenly you might not want to keep it anymore because the prospects were fair in the first place.

However, selling it would rise choruses of disapproval from a die-hard value investing fan and accusations of momentum trading. There are also slogans by Buffett out there which say that you should prefer to buy a good company at a fair price rather than a fair company at a good price. Well, it did not really say not to buy a fair company at a good price, did it? I think it's too simplistic take a view or statement literally.  

Even Warren Buffett does not keep all his stocks forever. It's also easy to say that Warren felt that he would have done much better by keeping all his stocks without selling but the reality is no one has infinite amounts of money to stay put forever. I do not think Warren meant it literally, but there is always the context or perception to the statement. If one had infinite amounts of money, they would have little motivation to be in the stock market anyway.

I think many people would like to believe or are unaware of their own beliefs (myself included) that investing can be summarized to three bullet points. While Occam's Razor has it's merits, simplicity can be also over-rated.

It's really tempting sometimes to think that you are right when the markets are doing well and your stock picks seem to validate your own superb ability to stock-pick. Oh yes, I do value investing and here's my results! ...

It's perhaps human nature to try to summarize something into something that they are comfortable with or something that simply makes sense to them. In general, there is nothing wrong with that. Let's just not over-stretch it.

While it's tempting to paint the world in black and white and assign simple labels to everything, the world is likely to be grey.

Now, that was simple summary, isn't it? The irony.  

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