The Perversion of the Investment Catalyst


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Look me in the eyes. Does your stock have a catalyst?

For every stock you buy, does it have a catalyst?

Yes? No?

Most stock articles you read always include some sort of upcoming catalyst that is going to propel the stock higher. Heck, even ValueInvestorsClub requires every stock pitch to have a catalyst. But to only invest in stocks with clear catalysts defeats the purpose of value investing.

Catalysts are not important, nor is it required for an investment.

Take it from the man who defined value investing, Ben Graham. He just wanted one thing and spent his days with Walter Schloss searching for it.

Cheap stocks.

Warren Buffett also wants to buy one thing.

Awesome companies.

Neither mentioned anything in any of their writings about seeking a catalyst to make a successful investment. In fact, they told you the opposite.

Sit and wait they said.

The problem is that sitting and waiting is torture today. There has to be action. There has to be fast moves up and if something doesn’t play out within a few months, it’s a dud and not worth keeping any longer. “Next!”

Investors today lack assiduity. That’s Charlie Munger’s technical term for sitting on your ass and doing nothing.

If you must seek a catalyst, remember that being cheap itself is a catalyst. That’s the number one catalyst which always gets ignored because it’s so simple and boring.

I hope a light bulb just went off somewhere.

Let Mr Market do his thing and waltz around with Miss Price in his arms. You don’t have to join his dance or gaze longingly at Miss Stock Price. They are a pure vanity couple. Great looking and fun to be with but horrible to live with.

Having a catalyst is good, but is it necessary?

No.

You make money by waiting.
Monish Pabrai

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7 responses to “The Perversion of the Investment Catalyst”

  1. farrellpj says:

    The last line is a classic,
    “Great looking and fun to be with but horrible to live with.”
    Waiting game !
    If your like me and have demo accounts all over the web, some of those stock picks were good if you waited 3 year+ !!!

  2. IronMG says:

    as Charles Sizemore once said: “a quality stock trading at an attractive price
    creates its own catalyst”

  3. Hahaha I hear ya. My virtual accounts are outpacing my real one. Goes to show that when there is detachment and lack of “following up”, it does wonders.

  4. Samuel Goti says:

    Requiring a catalyst can be good but it strikes me more as speculation than anything else.

    A catalyst, as I usually see it used, is something that will cause the market to reassess the price multiple (etc) which they attach to the stock (e.g. it’s trading at 8x earnings but the market will now value it at 10x earnings).

    Used that way, the catalyst is more about market psychology than it is about actual investing (in Keynes’ sense). But having a catalyst sure doesn’t hurt.

  5. Mike says:

    Catalysts in my opinion are useful and helping provide a margin of safety. They speed up the time that your thesis can be realized, and thus reduce the window of time where “[email protected]# happens”

  6. Useful, but that’s the thing. Every one wants an investment to work out right away and no longer sit and wait. Some of the best investments you come across are ones that just continue to compound, without any clear catalysts.

  7. Maybe a big negative or uncertain catalyst to bring a once in a lifetime opportunity.

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