In his book “Poker Wisdom of a Champion”, Doyle Brunson writes about a time he went to a neighborhood party with another professional poker player named Harvey and his wife. All the neighbors decided to strike up a friendly little poker game, all that is except Doyle and Harvey, who were just observing.
At one point, Harvey’s wife had to go to the ladies’ room, so she asked Harvey if he would sit in and play a few hands while she was gone. He agreed, but the moment he sat down he felt apprehensive because of the pressure to perform, seeing that he was a professional. The cards weren’t going his way and he began to press. After all, he had something to prove, or at least he felt he did. By the time Harvey’s wife returned, Harvey had managed to lose the better part of her chips.
Brunson draws an important lesson from this simple story. “Some nights you’ve got to wait hours to get a decent hand. Poker skill is something that works for you in the long run.”
And so it is with investing. You can’t press. It is simply not given that on any given day you are going to find a good company, which you understand, with a clear competitive advantage, selling at a meaningful discount to its intrinsic value. Making money is not that easy. You have to go to work everyday and patiently focus on the process. It can be frustrating, but there is no other way, unless you want to resign yourself to, at best, mediocre returns.
Sure, there are paid services that value thousands of companies and that are always ready to serve up a number of undervalued securities. There are articles everyday on the Internet and in the papers offering up the latest “undervalued” stocks. Be very careful here. I’m not saying that these can’t be sources of ideas, but the idea that it is this easy probably doesn’t stand-up to a serious critique. These paid services must produce recommendations, just like financial journalists that cater to investors must produce articles that recommend stocks. Buffett is happy if he can come up with one, or maybe two, good ideas each year.
I’ve read that there are people who make a good living betting on the horses. They don’t bet though like the “average Joe”. They carefully study the stats and odds, and then wait very patiently – days or even weeks – until a situation arises where the product of the odds and the payoff create the mathematical expectancy of a winning bet – and then they bet in size.
“Some nights you’ve got to wait hours to get a decent hand.” Investing is no different.