Prepare for the Situation to Proceed Faster than You Think.
Most deteriorating businesses will do so faster than you anticipate. Be very wary of value traps, or companies that look cheap but are generating little or no economic value. On the other hand, strong businesses with solid competitive advantages will often exceed your expectations. Have a very wide margin of safety with a troubled business, but do not be afraid to have a much smaller margin of safety for a wonderful business with a shareholder-friendly management team.

 Expect Surprises to Repeat
The first big positive surprise from a company is unlikely to be the last. Ditto the first big negative surprise. Remember the “cockroach theory.” Namely, the first cockroach you see is probably not the only one around; there are likely scores more that you can’t see.

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