Matt Franz : Zealous For Knowledge

“Hell Yeah!” or “No.”

Derek Sivers uses a simple rule of thumb to decide which projects to take on: if he’s so fired up about the opportunity that he’s saying “Hell yeah!” then he goes for it. Otherwise, he doesn’t. As a result, his efforts are always concentrated on his top ideas.

Mohnish Pabrai recommends a similar approach in his recent talk. His premise is that the best investments are such obvious bargains and have such a wide margin of safety that deep due diligence and complex valuation models are not necessary.

This is not a new idea. Buffett says, “If you need to use a computer or calculator to make the calculation, you shouldn’t buy it…It should scream at you…we do not sit down with spreadsheets and do all that sort of thing. We just see something that obviously is better than anything else around that we understand — and then we act.”

If an investor isn’t focused on detailed valuation work then what should he do all day? Look at more companies. As Peter Lynch says, “The person that turns over the most rocks wins the game.”

Consider two miners looking for gold. The first miner walks through the forest flipping rocks. Each time he turns a rock over, he chisels the surface away to see if there is gold concealed inside. At the first sign of gold, even a spec, he stops, makes camp, and prepares to dig.

The second miner sprints through the forest as fast as possible and flips every rock in sight. The only time the second miner stops is when he flips a rock and discovers a golden nugget lying on the ground. He pockets the gold (no mining necessary) and continues on.

Most investors use the first miner’s approach. Pabrai, Buffett, and Lynch use the second’s.

The moral of the story is that the value should be obvious, even to the untrained eye. The only way to find these bargains is to flip over more rocks. If you’re not looking at a company saying, “Hell yeah!” you should say “No.”

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