CHAPTER 4

Waiting On a Limb

The vulture, to make a living, must rise to a great height thence to gain a large field of observation, and he must there long remain without fatigue. …Certain species of vultures, particularly the larger, absolutely can, upon a windy day, leave their perch in the morning, travel many leagues, spend the whole day in the air, and get back to their perch at night without one single beat of their wings.

—Louis-Pierre Mouillard, The Empire of the Air: An Ornithological Essay on the Flight of Birds

A vulture’s daily life can be a bit humdrum. A good carcass is hard to find, so, much of your time is spent perched in a tree watching and waiting—or in the air scanning the landscape. You might be very busy researching investment opportunities, screening for acquisition candidates, and meeting with management teams, but you will only swoop in for a bite when the perfect opportunity arises.

Warren Buffett once said, “Never invest in a business you cannot understand.” I have made this principle my guide—unless I am confident that I personally understand it thoroughly, I will not make an investment. In day-to-day practice that means I often wait for a long time before making any investment decision, if I make one at all.

Fortunately, companies don’t become distressed overnight. Usually there is a period of many months, quarters, and sometimes years before a company ...

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