As a young analyst, I always started by looking for really cheap stocks, and after concluding they were indeed underpriced, I then tried to convince myself that neither the businesses nor managements were bad enough to offset the statistical cheapness.
Having completed all the valuation work before even meeting the maragement, you can guess how strongly biased I was to conclude that they were at least acceptable! Today, I encourage our analysts to reverse that process: Find businesses and managements they’d be excited to own and then do the wark to see if the valuation is attractive.
If it isn’t attractive now, monitor the stock price so you are prepared to act when it is more attractive. It is really amazing to see over the course of our holding period, typically five to seven years, how much value a great maragement can add that never was incorporated in our model, and conversely, how much value a bad management can destroy.
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