A Great Business Isn't a Great Investment at the Wrong Price or Wrong Terms 

We spend a lot of time talking about the various traits of a good business - high returns on equity, little or no debt, franchise value, a shareholder friendly management, etc. 

Although Charlie Munger's dictum, "it's far better to buy a good business at a fair price rather than a fair business a great price" is true, it is important for you to realize that good results are not likely to be had by those that buy such stocks regardless of price. 

It's a fine distinction, but one that can mean the difference between good results and disastrous losses. At least, not within a short period of time.

Back in the late 1960's, Wall Street became enthralled with a group of stocks dubbed The Nifty Fifty. Perhaps the online encyclopedia Wikipedia sums it up best, "[These stocks] had everything going for them - brand names, patents, top management, spectacular sales, and solid profits. 
回顧20世紀60年代末期,華爾街迷上了一批稱為Nifty Fifty的股票,可能網絡百科全書Wikipedia總結得最到位“這些股票有所有讓你買下的理由:大牌、專利、高層管理人員、可觀的銷售額和穩定的利潤。

They were thought to be best stocks to buy them and hold them for the long run, and that was all you needed to do.

These were the stocks 'dreams' were made of ...for the long haul to retire with."

The fatal flaw in this logic is that investors believed that these companies - enterprises such as Eastman Kodak and Xerox - were so inherently good that they could (and should) be bought at any price. Of course, this is simply not the case. 

Although a stock trading at a high p/e ratio isn't always overpriced, more often than not, a stock trading at a price-to-earnings ratio of 60x is almost assuredly going to generate a rate of return less than that of a so-called "risk-free" U.S. Treasury bond. 

What makes this discussion complicated is:

First, many inexperienced investors fail to realize that, even though companies like Eastman Kodak went bankrupt, long-term investors still should have walked away with a lot more wealth than they had prior to their investment.  

This can be difficult to grasp if you aren't aware of how dividends, spin-offs, split-off, and even tax loss credits work but it is, nevertheless, the case.

Second, for 20 to 30 years after the Nifty Fifty peaked, the basket of stocks, as a whole, underperformed the market.  
其次,Nifty Fifty火爆之后的20-30年間,股票籃子整體市場表現不佳。

However, by the time you started getting into the 30 to 40-year range, the underlying businesses were, in fact, so good that they ultimately ended up beating the market as the core economic engines were so superior they burned off the excess valuation. 

Not only that, but the Nifty Fifty would have had better tax efficiency than an index fund. When dealing with excellent businesses, the ghost ship approach, historically, has won in the long-run but how many investors are willing to stick with 30 or 40 years of near total passivity in a lifetime that, for most people, will last only 80 years or so? Again, it's an issue for behavioral economics.
不僅如此,Nifty Fifty比指數基金的稅收效益更好,從歷史角度來看“幽靈船”的方法針對好的投資產品具有長期優勢,但有多少投資者愿意一輩子幾乎完全被動地等上30或40年呢?大多數人只能活80歲左右。再強調一下,這是行為經濟學的問題。

All else equal, though, try and avoid investments that are priced to perfection with no margin of safety because a mere blip in operating performance could cause a long-term, catastrophic loss in principal as fickle speculators flee to hotter securities. 

Even then, if you are going to consider it, stick solely to the bluest of the blue chips. You can probably get away with overpaying for a company like Johnson & Johnson if you're going to hold it for the next 50 years - nobody knows the future but the odds seem to favor it - whereas I wouldn't be so keen on doing it for a firm like Facebook.