Geoff Gannon wrote a great article over the weekend entitled "The 4 Questions to Ask Before Buying a Stock." In the post he writes:
"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."
"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."
"We are less concerned with the absolute quality of our companies than with the price we pay for whatever it is we're getting. In short, we feel “everything is triple-A at the right price”. We have many reasons for following this approach, including the fact that relatively few people compete with us to do so. But we feel buying any asset for less than it's worth virtually assures success. Identifying top quality assets does not; the risk of overpaying for that quality still remains."