Great investors are those who identify great businesses trading at cheap prices. It’s simple, really — and the odds and ends like wars with Syria, interest rate policy, or the next Fed chief have very little to do with long-term results because they affect all businesses. Our goal is to find those that are relatively better by comparison.
One of Klarman’s biggest positions is American International Group Inc (NYSE:AIG). Despite gaining 37% this year, American International Group Inc (NYSE:AIG) still trades at 0.72 times tangible book value. You can buy it for less than the value of its balance sheet, potentially giving investors a huge margin of safety. All else equal, an insurance company trading for less than tangible book is a better wager than one trading at 5 times book value.
Likewise, Warren Buffett continues to add to his stable of great brands. He recently acquired Heinz in a deal with 3G Capital. The fact is, ketchup, mustard, and TGI Friday’s potato skins will continue to sell, regardless of who is Fed chairman, or whether or not the 10-year yield ticks past 3%.
Buffett continues to hold a position in Wells Fargo & Co (NYSE:WFC) because no matter what happens in the next two years, it’s a stable, simple bank that should generate profits for many decades. Most impressively, Buffett has no problems buying this stock at higher and higher prices, buying it first in 1990 for a dividend-and-split-adjusted price of less than $3 per share.
Foolish investing in action
The Motley Fool celebrates the idea of long-term investing — buying great brands and businesses to hold for years… perhaps forever. Given recent calamity surrounding an end to quantitative easing or a new Fed chief, it’s important to step back and think.
Think as if you’d never get the chance to sell your shares to someone else — that dividends and the compounding of book value would be your only way to cash out.
If you seek out stocks with this mind-set, you’ll stop caring what the market thinks day to day, and likely invest in better stocks than you otherwise might. Most importantly, you’ll stop caring about the unknowable — rates, presidents, wars, and Fed chiefs, all things that serve as distractions, not investment theses.
The article The Fed: What Great Investors Have to Say originally appeared on Fool.com and is written by Jordan Wathen.
Fool contributor Jordan Wathen has no position in any stocks mentioned. The Motley Fool recommends American International Group (NYSE:AIG), Berkshire Hathaway, and Wells Fargo. The Motley Fool owns shares of American International Group, Berkshire Hathaway, and Wells Fargo and (NYSE:WFC) has the following options: long January 2014 $25 calls on American International Group.
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