A couple weeks ago, my favorite college football team was playing in their big rivalry game. It was a close game that went back and forth. At the two minute mark, my team had the ball, trailing by three, with an opportunity to win the game, if they could execute their two-minute drill and score a touchdown. Unfortunately, they fell short, not just because they did not make plays, but also because they seemed confused and poorly prepared.
Knowledgeable football fans know that the key to an effective two-minute drill happens long before the actual game. It is all about preparation. There is little or no time to figure it out in real time when you have the pressure of trying to come from behind and win the game.
For me, this was yet another reminder that you need to be prepared ahead of time in the markets. You cannot wake up on the morning of a big down day in the market and expect to make good decisions on what to buy if you have not already done your homework.
These are the days when opportunity presents himself. Buffett recently said he was buying heavily on the big down days in August. Templeton would do his valuation work when the markets were calm and then put in his standing purchase orders at deeply discounted prices. Then he would wait.
You need a well conceived watchlist if you want to beat the market. Your watchlist does not need to be long. It needs to be thoughtful. Start with a short list of high conviction ideas that you truly understand. Determine an appropriate buy price by valuing the businesses on the list and selecting a reasonably discounted entry point.
These optimal opportunities do not come along everyday, but they do happen. If you are honest, you can probably recognize many sub-optimal purchases that you have made because you missed these types of opportunities and were willing to pay too high a price for at least some of your securities.
Resolve to correct these poor tendencies. Read my eBook on the investment process for more advise on improving your process. There are no short cuts or magic valuation algorithms. It is about sweating the details day in and day out. That is how consistent market-beating performance is earned.