Note: This is an excerpt from the article Where Do Great (Investment) Ideas Come From, which I wrote for the May 2015 issue of our premium newsletter, Value Investing Almanack. To read the complete article and our vast archives spanning 4+ years, please click here to subscribe.
Consider that you are looking to buy a stock and the two that you come across on your screen are, say, Company A and Company B. Here are a few data points about the two companies, which are the only factors you would look at while making your decision. Look at them and think which one you would rather purchase –
Did you make a decision? Before you read on, jot down either Company A or Company B. Now I’m going to give you some more data points on these companies. No information has been changed, but some has been added.
Which stock would you rather purchase now? Again, write down your answer. I’m going to present the options a third time, again adding one new element.
Now, which of the two would you prefer?