In one sentence: In answer to a listener's question, Phil says a stock that looks cheap but has hit its highest price ever, with no event behind it, should be assumed not to be on sale, and Danielle pushes back before agreeing to add "where is the fear and greed?" to her checklist.
Key ideas
- The question (from Santiago). If a company looks well below its margin-of-safety price by your numbers but hasn't had any event, and has never come near its sticker price, do you still need an event to buy? [07:00–10:00]
- Phil's rule of thumb. If you think it is on sale and there is no event, "just assume it's not on sale" and back off. This is the teaching from the three-day workshop. [16:00–18:00]
- Why a no-event bargain is suspect. If a stock is at a record high and your tools say it is cheap, either you out-see thousands of professional analysts or you are missing something, such as a founder-CEO about to leave or a shift in the business (Phil's example is Oracle's cloud challenge a few years earlier; details are his recollection). That is a value trap. [11:00–17:00]
- Six-inch bars, not six-foot bars. Choose businesses where the call is easy. Phil says Amazon and Facebook were too hard for him, Buffett and Munger, and that's fine: the misses are errors of omission, which he can live with. [19:00–24:00]
- The exception: Google. Phil bought Google at about $200 after it had already doubled, because he used the product and thought few people understood the business model. He says it went into the smaller risky-business portfolio, and calls it the exception that proves the rule. [21:00–23:00]
- Danielle's pushback. If the market undervalues a company because it looks at the short term, as with Amazon around 2010, isn't a no-event bargain possible? And isn't "they are smarter than you" odd after a year of "the market misprices things"? [17:00–19:00, 26:00–28:00]
- Smarter is the wrong frame; information and incentives are the right ones. Professionals may have contacts and "scuttlebutt" you lack, such as a CEO about to quit, so a price can reflect information you don't have. Phil adds that it is incentives and fear that make them do dumb things, not low intelligence. [26:00–31:00]
- Weighing machine versus voting machine. Graham's image: in the short run the market votes on momentum and emotion, in the long run it weighs. At a record high with no event the emotion is drained out and the market may be pricing the company about right. [31:00–33:00]
- Danielle's new checklist line. "Where is the emotion? Where's the fear, where's the greed?" [33:00]
How it maps to RuleOne
- The screen's event watch (drawdowns, insider buys, 13Ds, 8-Ks) is exactly this filter: a name that looks cheap but shows no drawdown or news is, by Phil's rule, a "probably not on sale" name.
- On /stock/TICKER/, compare the price with its five-year range before trusting a low valuation figure.
- The two-portfolio idea (main versus a small risky portfolio) maps to position sizing on /holdings/, where an uncertain name gets about 1%, not 10%.
Buffett, Munger and Graham links
- Graham's "voting machine in the short run, weighing machine in the long run" (The Intelligent Investor, ch. 8, Buffett's 1987 letter also uses Mr. Market).
- Buffett's "too hard pile" and his 2018 Amazon regret, which Phil recalls loosely here.
Words to know
- Event: temporary, fear-driving news that puts a good business on sale.
- Value trap: a stock that looks cheap but is cheap for a reason.
- Information asymmetry: others know something you don't, which is a different thing from being smarter.
- Error of omission: a missed opportunity, as opposed to a loss.
Try this
Take three names from /stocks/ that look cheap on the screen. For each, check the chart: is the price near its five-year high? Is there any recent bad news? Write "no event, assume not on sale" next to any that fail both, and read about the one with a real event.
Check yourself
- Phil's rule when a stock looks cheap but there is no event?
Answer
Assume it is not on sale and move on. - What are the possible reasons the market might be pricing it higher than your numbers?
Answer
Others have information you lack (an insider-type fact like a departing CEO) or see a risk to the future that your forecast doesn't. - What does Graham's voting versus weighing machine imply here?
Answer
Short-run prices follow emotion; with no fear or greed in the price, it's likely close to value.
Short quotes
"Where is the emotion? Where's the fear? Where's the greed?" (Danielle, ~33:00, auto-transcribed)