The Fine Art of Sitting Still
By Dan Ferris
March 31, 2007
"It's good to be smart, but it's better to be lucky."
That's what Christopher Browne, of Tweedy, Browne, said last November, as he addressed the Value Investing Congress at the Time-Warner Center in New York City.
I'm fortunate enough to know exactly what Browne was talking about. When I recommended Extreme Value readers buy shares of ExxonMobil back in July, it was selling for around $64 a share. Today, it's more than $75, up 19% with dividends in just 10 months.
I will take credit for knowing that you don't need to be a genius to buy ExxonMobil at less than six times pretax earnings with oil far north of $40 a barrel. I won't take credit for the sharp move to the upside ExxonMobil's stock made within weeks of our recommendation. That was pure luck.
If you think I have "good timing," you're mistaken. What value investors do is never, ever worry about mere timing. We bought ExxonMobil for the same reason we buy any stock, because of its low price in relation to its substantial value.
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ExxonMobil isn't the only one, either. With the market as a whole moving up for the past few years, the stocks we've recently recommended in Extreme Value seem to be able to do little wrong. Our average gain is more than 50% (including losers), with an average holding time of about two years.
I've gone to great lengths to tell my readers not to worry about making quick gains because a rising market (which often produces those quick gains) should not be mistaken for an acumen that no one can possess. Nor should a falling market be interpreted as proof of our lack of any useful skill or knowledge. I am – and always will be – market agnostic.
In general, I prefer depressed market conditions, only because I expect to find more good businesses trading at better prices. I like to see bad headlines and investor panic. But I'll buy anything at any time, if it's cheap enough, with zero regard for the movement of market indices or other popular indicators of the overall climate for stocks.
Extreme Value engages in time arbitrage. That's the term Joel Greenblatt, legendary founder of Gotham Capital, used at the Value Investing Congress.
Greenblatt translates the term as, simply, patience. It means that the rest of the market is focused on short-term results. When stocks do poorly in the short term, it creates selling pressures for institutions and individuals. That provides us with an opportunity to buy stocks cheap and hold them for longer than everybody else, and to earn outsized rewards for doing so.
The only slight hiccup with patience is that it's outside the natural temperament of just about every human being on Earth. A few of us have the right temperament naturally, a bunch more of us can learn it, and the rest of us have no business managing money.
But for anyone who can spot a great value, buy it, and learn the fine art of sitting still for four or five years, this is the single-most profitable form of investing in the world.
