This can be deeply uncomfortable. However, Strandberg says that is why it is important to remember the second pillar of value investing: “There is a vast difference between a good company and a good investment,” Strandberg says. “We all too often hear people say that we only invest in good businesses and it seems comforting. It shouldn’t be.” Seeing out the discomfort That is because, as Murphy points out, those companies that everybody already knows are good businesses are not going to be offering attractive valuations.
“We look in totally the opposite direction,” Murphy says. “We look for companies that are going through tough times; companies that have some challenge in their marketplaces; companies where the stock market may think that the management is just bad. We look at that and try to understand all of the risks facing that company; we try to make sure that they are priced in; that we understand them; and, most importantly, that we are compensated for those risks.”
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