At a Fair Price

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Warren Buffett

Most people remember the words “a wonderful company” and skip the four that follow: “at a fair price.” They find the business — high returns on capital, little debt, a management team that allocates capital well — and feel the work is done.

It isn’t. Those four words decide what you earn.

A great business bought at any price is not a great investment. It is a good decision and a bad entry, and your return is the sum of the two.

What follows from that is uncomfortable. Having found the company you would happily own for a decade, you often have to wait years before you are allowed to buy it. Most of the work of this job is waiting for a price, not looking for a company.

In October 2018 I published a thesis on Lam Research at $14.13, split-adjusted. The quality was never the question that autumn; the price was. A great business had been priced as a cyclical, and that gap was the entire opportunity. By late August this year the stock stood at roughly 22 times my entry.

Finding the company was the easy part.

Your turn: Is there a company you’d love to own but are waiting for the right price? Email me at imran@marketmeditation.com. I read every answer.

Imran Siddiqui
Portfolio Manager