13
Pull the Trigger
“When we see something that makes sense, we’re willing to act very fast and very big.”
—WARREN BUFFETT1
“Time and tide wait for no man.”
—OLD ENGLISH PROVERB
“He who hesitates is a damn fool.”
—MAE WEST
ONCE THE MASTER INVESTOR HAS made a decision to buy or sell, he acts immediately.
What could hold him back? He has found an investment that he understands; it meets all his investment criteria; he knows how much he wants to buy or sell at what price and has the resources available; his cumulative experience and the thinking he has done have proven to him the validity of both his investment philosophy and his investment system. There is nothing else for him to think about.
Buying or selling becomes no more than a routine matter.
You can probably easily relate to the Master Investor’s state of mind—in noninvestment activities. In fact, I’m sure you act dispassionately and routinely many times a day.
For example, imagine you have decided to go to a particular restaurant. You just pick up the phone and make a reservation. You don’t hesitate; you don’t have an internal debate about the wisdom of going to this restaurant—or think about other restaurants that might be better; you don’t wonder if you’re doing the right thing, feel unsure about whether you should spend so much money, or wonder if the food might be better tomorrow (or regret not going there yesterday). Your mind is on other matters—perhaps the pleasure of meeting your friends or the anticipation of a pleasant evening—and the act of making the reservation is purely mechanical.
Buffett and Soros call their brokers with the same lack of emotion you exhibit when you make dinner, theater, or airline reservations. Why do so many investors procrastinate about buying or selling, with the feeling that pulling the trigger is like pulling teeth? What are they not doing that Buffett and Soros are doing?
The investor who hasn’t clarified his investment criteria has no way of measuring the worth of any investment idea he may have. Even if he has researched an investment intensely and decided to buy, without criteria he cannot be sure. One way he can “test” his thinking is by asking a friend, or even his broker, for an opinion, substituting somebody else’s view for the criteria he doesn’t have. It’s hardly surprising that when he calls the broker, deep down he’s still wondering: Am I doing the right thing?
The investor who has no criteria is always plagued by self-doubt. There can be no finality to his decision-making process. He can never be certain he is doing the right thing.
The What-If Game
There is an endless supply of what-ifs that can prey on an investor’s mind. What if a better investment comes along next week? What if I sell A so that I can buy B, and A turns out to be better? What if I’m making a mistake? What if interest rates go down—or up—or the chairman of the Federal Reserve gets out of the wrong side of the bed tomorrow morning? What if the market tanks? What if the price goes down, giving me a better entry point tomorrow—or next week?
The doubt, “What if I’m wrong?” often causes an investor to buy far less than he intended. Say he’s convinced himself to buy 10,000 shares and feels comfortable about that—until he calls his broker. Now that it’s time to put real money on the line, he begins to doubt his own judgment. “Perhaps,” he tells himself, “I’ll just buy 2,000 first. See what happens. And buy the rest later.” And never does.
Such questions never enter the Master Investor’s mind. For him, calling the broker is a mechanical act of completion. His mind is already moving on to some other topic; perhaps another investment idea he is pondering … or what’s on TV tonight.
Another common constraint is a felt lack of resources. Perhaps the investor has no cash available because he is fully invested, so he thinks he simply can’t afford to buy it. This is a restraint the Master Investor also faces, especially in his early years. But since his criteria are clear, he is able to judge whether his latest investment idea is or isn’t superior to one or more of the investments he currently owns. If he faces such a constraint, when he pulls the trigger he has already decided what investment he is going to sell to be able to do so.
Or, in another example I’m aware of, the investor has the money to act—but it’s in some other account. As he thinks about all the steps he has to go through to make the money available quickly, his self-doubt grabs that as a lever to stop him in his tracks. Any delay gives him plenty of time to more fully develop the thinking behind all of his doubts and worries.
Instant Decisions
The Master Investor doesn’t only act instantly; he can also decide very quickly whether to make an investment. Sometimes it’s almost impossible to distinguish decision from action.
Once, Soros was in the middle of a tennis game when the phone rang. It was 1974, and the Watergate scandal was threatening President Richard Nixon’s survival.
On the line was a broker from Tokyo. He’d called to tell Soros that Watergate was giving Japanese markets the jitters. Soros had millions of dollars in Japanese stocks, and he had to decide what to do.
He didn’t hesitate. In just a fraction of a second he told the broker to get him out.
Warren Buffett can make up his mind just as quickly. He “can say ‘no’ in 10 seconds or so” to most of the investment proposals that come his way “simply because we have these filters.”2
His filters are his investment criteria. They enable him to choose between suitable and unsuitable investments with lightning speed, as when he bought Borsheim’s, America’s second-largest retailer of jewelry after Tiffany’s.
When Buffett was looking at a ring while Christmas shopping at Borsheim’s in 1988, [co-owner Donald] Yale yelled out, “Don’t sell Warren the ring, sell him the store!”
After the first of the year, Buffett called and asked if a sale were possible. A short time later Buffett bought the store from Ike Friedman, Borsheim’s president, after a brief meeting at Friedman’s house with Friedman and Yale.
“The substantive part of the talk was 10 minutes,” Yale said. “He asked us five questions and Ike had a price. The three of us later met at Buffett’s office and Ike and Warren shook hands on the sale.”3
Buffett isn’t joking when he can promise—as he did in the 1982 annual report to Berkshire shareholders—“to respond to any offers quickly, ‘customarily within five minutes.’”4
To Buffett and Soros, making an investment decision is like choosing between black and white. There are no shades of gray: Either the investment meets their criteria or it doesn’t. When it does, they pounce.