Posted by Step 1: Find a wonderful business
Step 2: Calculate Intrinsic Value
Step 3: Buy at 50% Sale
Step 4: Repeat Until Very Rich
Seems very simple. Why doesn’t everybody do it? One word: Patience.
This is the method I learnt from one of the great Investors Phil Town. He has this wonderful free course on his website which I went through. You can check it out here at www.ruleoneinvesting.com
I am going to use this as my investing framework. It is same as Buffett’s philosophy of buying wonderful businesses at a cheap price.
In his 1985 interview, Buffett said that the most important quality for an investor is the temperamental quality and not the intellectual quality.
In the above steps, Step 1 and 2 are Intellectual process involving understanding the business of a company and calculating its intrinsic value. This is relatively easier to do. It is only 10% of the whole process.
The real game is in Step 3. Buying that wonderful business at 50% sale. This requires waiting like hell. This is why Buffett gets one or two businesses a year! He is waiting all the time and buys companies when they go on sale. This Step accounts for 90% of the success of an Investor.
Charlie Munger Says “The Real Money is not in Buying and Selling. The Real Money is in Waiting.”
Waiting for What? Waiting for the right time to buy and waiting for the right time to sell.
Once Mohnish Pabrai was asked how many people does it take to manage a multi-billion dollar fund. He said “0.1”!
It takes only 10% of the time of one person to manage a billion-dollar fund. Phil Town says “If you are doing Rule #1 Investing properly, you are not doing much most of the time.
This is the step where 99% of the investors and fund managers lose. They do step 1 and 2 correctly but fail to buy it at the right price and then fail to hold it through ups and downs.
So, The most important quality to develop in this business is PATIENCE.
Develop this quality and you will be filthy rich!