Chapter 1. Invest in the Business, Buy the Stock

Investment is most prudent when it is most businesslike.

Benjamin Graham, The Intelligent Investor

Mention Ben Graham's quote to investors, and they all nod their heads in agreement. But for most people, that's where the understanding ends. In practice, most individuals approach investing in a very unbusinesslike fashion; they just don't realize it at the time. Often they give more attention to the stock price and what it does than to what the business itself is doing. When markets are in an upswing, this perspective might not matter much. Then again, a value-oriented investment approach is not geared toward bull markets but at bear markets. Riding out the storm relatively unscathed is the name of the game. To invest at sensible prices, it is wise to think first about the business and understanding it and its industry.

I know firsthand the value of investing in the business versus the stock because I thought this was the approach I was taking when I first starting investing in my late teens. Yet years later, I decided to go back and look at some of my investment decisions, and what I found surprised me.

I realized that while I was buying good businesses that I understood, I was letting a moving stock price instruct me as to when to buy and sell. One specific deal that crystallized these thoughts was my 2002 investment in a company called Meridian Medical Technologies. It was a good profitable business, but unfortunately, I was not around ...

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