Investment is most intelligent when it is most businesslike

There is this wonderful compilation of Warren Buffett's sayings done by Bud Labitan called "The Warren Buffett Business Factors" but unfortunately the link I had recorded is broken.

Attitude and Temperament

Our advantage, was attitude: we learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.

Ben wrote: “Investment is most intelligent when it is most businesslike.” This quote comes from what I think is the best book on investing ever written - “The Intelligent Investor.”

We believe that our formula - the purchase at sensible prices of businesses that have good underlying economics and are run by honest and able people - is certain to produce reasonable success. We expect, therefore, to keep on doing well.

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Investment is most intelligent when it is most businesslike. One heck of a statement. What is businesslike? We treat our investment as if we are doing business. And so what the business of buying shares? Say, you are running a business and your business is a business where you buy into shares of companies. To be profitable in such a business, isn't it logical that one runs the business buy buying only the good business at the best (or sensible) price? Apply this to the investment of shares. How?

Let's expand on Buffett's formula.

the purchase at sensible prices of businesses that have good underlying economics and are run by honest and able people - is certain to produce reasonable success.

Buffett teaches one to invest only in the good businesses at a sensible price. Overpaying for it would not gurantee anyone success. Yup, you cannot simply buy any good stock (or those so-called blue chip) at any price and hope for success.

The last part of that statement... businesses that have good underlying economics and are run by honest and able people .... ahhhh ..... this i feel is just as important. The good underlying business economices would gurantee the investor a good long profit. Take a step back. What is the best type of investment? Investment that gives a one-time off return or investments that continue to yield good returns every year for as long as possible? One time big rewards are hard to come by. Let's face it, the luck factor is so important in this type of investment. Yup, you have to be just as lucky as the company in striking the jackpot(s). It is just difficult no matter how skillful we are. Whereas investment that is able to generate good yearly returns for a long time is not as difficult to find. And as Buffett states, business that have good underlying business economics is what we want to look for. Business that because of their good underlying economics is able to produce healthy profits for the company and the investor.

Run by honest and able people. This i feel is most neglected by most. Their focus is on how much the company is currently making. Alas, if the company is not run by honest management, there is no gurantee the common investor would benefit or realise the potential of their investment in such company.

If the owners are not honest, does it make sense to invest in a company when you cannot trust the owner?

Which is exactly the same as what was written in Reminiscenes of a Stock Operator:

I have never thought it good business to play any game in any place where it was necessary to keep an eye on the dealer because he was likely to cheat if unwatched.

Think about it.

Would you really want to go into business with folks you cannot trust?

Do you think that it is intelligent to be in a business proposition where your partner will most likely to cheat your moola when you are not paying attention?