Analysis paralysis | stockbee

6/29/2007

Analysis paralysis

Value Discipline makes a valid point about analysis paralysis.

Discipline is incredibly important, but don't bury yourself in the details. I can recall Buffett describing his spending about half an hour in his analysis of General Dynamics submarine business shortly before buying a 15% stake in the company.So many investors get caught in analysis paralysis or intellectual constipation...you need to execute to own. Analysis and thinking is required but the obvious bargains are...obvious!


Ability to quickly grasp the potential of an idea is very important in the market. I have been reading The Dhandho Investor: The Low - Risk Value Method to High Returns by Mohnish Pabrai , in that book he again talks about quick and dirty analysis to take 10% stake in a company. In fact Pabrai says if you have to open Excel to run number, you should pass the idea. Obvious stories on value side or growth side are so obvious, that you can make up your mind in minutes.

When I look at Episodic Pivots candidates, it takes me few minutes to decide whether this has legs or not. If something is not obvious, or catalyst is not apparent, I just pass it on. The key to doing quick analysis is having a deeper perspective about markets and faith in your methods.

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