The Joys of Compounding: The Passionate Pursuit of Lifelong Learning, Revised and Updated (Heilbrunn Center for Graham & Dodd Investing Series)

by Gautam Baid

On balance, paying a high price for even a great business may not always work out well if you have to sell that business in one or two years. But if you plan to hold your stocks for longer periods of time—say, five years, ten years, or longer—then quality becomes “much more important” than cheap initial valuations when assessing margin of safety. This leads to an important conclusion: when investing in short-term opportunities like commodities, cyclicals, and special situations, pay greater attention to price and mean reversion, but when investing in long-term compounders, pay maximum attention to the quality of business and management above all else.