Just Say No

Buying and selling stocks is pretty easy to do. Open an online brokerage account. Trade for a relatively low cost, in most cases under $10 per trade. Occasionally the broker will even throw in free trades at the start of the relationship. Trade from your iPhone, your iPad, maybe soon even your new Apple Watch!

Brokers make it easy to say yes. Don’t like falling oil prices? Sell your Exxon stock. Like the latest flavor of Lays potato chips that just came out (which have recently included Cappuccino and Wasabi Ginger)? Buy its owner, PepsiCo.

However, we think that saying no most of the time actually makes more sense. We say it when we don’t know clearly if a business will still be a relevant competitor in 3-5 years. Or if we’re considering a company run by high salaried managers with little personal investment in their company’s stock.

The biggest “no” for us is price. For all potential investments we consider, we develop our own estimate of what a company is worth. We include in our analysis the valuations paid when public companies have been taken private.

Then we set a price we are willing to pay for that stock. We say no until those occasional points in the market come around where the stock seems to be mispriced.

A cliché but still true – a great company can be a bad investment at the wrong price. Ultimately both the quality of the business and the price at which it’s available are both important to the thoughtful investor.