During his recent interview on the Value Investing With Legends Podcast, Bruce Greenwald provided some great insights into the importance of being on the right side of the trade and looking for stocks that are temporarily diseased saying:
You always want to think about, why is what I’m doing going to put me on the right side of the trade. And if you think about investment as consisting of… I’m not going to talk about portfolio management because hopefully we can come back to it because that’s the part of this that you’re going to perfect in your part of this but… If you think about just investments there is a search strategy you have to have.
So you concentrate your efforts on opportunities where you’re more likely to be on the right side of the trade. Where the other side of the trade is clearly doing something irrational. The value approach to that was Ben Graham’s insight that people did not look at ugly, out of favor, disappointing stocks, and they loved lottery ticket stocks. So you’ve got to start with that orientation, which is the value orientation.
You want stuff that’s diseased. You just want to make sure it’s temporarily diseased, not permanently diseased, and the price is right to make money off it.
You can listen to the entire interview here:
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