Going back to our discussion, let's say you are short a stock because of your fundamental analysis and the stock is going against you. How would you know when your analysis is wrong because you have overlooked some unknown important element? That situation happens fairly often. You buy or sell a stock and it doesn't act the way you think it should. I go
through my portfolio six times a day. There are many stocks in the portfolio that I am not directly responsible for. For
example, someone else is short Time, Inc. They are short because the magazine business is lousy, and this or that.
But the stock is acting really strong and is up 10 percent from where we shorted it. I will go over to the person
responsible for the Time Life position and ask several key questions: When are we going to get something that is
going to surprise the world? When is something going to happen that will ease the feeling that this company is ripe
for a takeover?
In a sense, I am a negative monitor of the portfolio. If there is a problem with a position I will go through it
very regularly. That makes me a very difficult person here, because I only talk to people when things are lousy or
when their stocks are not acting like they should.
If a stock is not acting like it should based on its fundamentals, would that be the type of market action that would change your thinking? I try to assume that the guy on the other side of a trade knows as least as much as I do. Let's say I buy
Texaco at $52 and it suddenly goes down to $50. Whoever sold Texaco at $52 had a perception that was dramatically
different from mine. It is incumbent on me to find out what his perception was.
What if you can't explain it? The explanation might be superficial or serious, but you can usually get something.
Let's take the situation of the tobacco companies. On balance, the news that came out after the
