By Compounding Academy
In this issue, we continue our Mindset SQUARED™ framework series, the structured process we use to identify, analyse, and invest in high-quality compounding businesses.
Today, we focus on one of the most important and often misunderstood steps in the process: Decide.
This is the stage where most mistakes occur, not because the underlying analysis is flawed, but because the final judgment is rushed. Decide is about bringing price, patience, and discipline together, and recognising that doing nothing is often the correct course of action.
By the time you reach this stage, the company itself should be well understood.
You know how the business makes money, what gives it staying power and looked at the risks properly. Nothing here should feel new.
What changes at this point is not the information, but the mindset. What matters now is judgment.
Does the current price make sense for a long-term investor?
At the Decide stage, we deliberately restrict the range of possible outcomes.
If the share price is below, or close to, your estimate of intrinsic value, and the quality of the business justifies ownership, the decision is to buy.
If the valuation appears stretched, the company is placed into the V.A.U.L.T. – Valuation Aside, Unique Long-Term Opportunities.
This does not mean the idea has been rejected. It means the work is complete, but the price is not yet attractive.
Keeping the decision this simple helps prevent over-analysis and emotional interference.
It allows you to remain engaged with the business without feeling compelled to act prematurely.
Many Investors often underestimate how frequently the correct decision is to wait.
Share prices tend to move far more than fundamentals in the short term, and valuation gaps open and close as sentiment shifts. For an investor who is prepared, these periods are opportunities rather than sources of pressure. You already know what you would like to own and have a sense of what you are willing to pay.
In practice, the default action is not to buy. It is to remain patient until the relationship between price and value improves.
Intrinsic value is never precise. It is an estimate based on assumptions, scenarios, and judgment, and that uncertainty cannot be eliminated.
What can be controlled is behaviour. Forcing a decision when expected returns are limited and the margin for error is thin is one of the most common ways good analysis leads to poor outcomes. The Decide step exists to prevent that, and to separate appreciation for a business from the discipline required to invest in it sensibly.
Think about the number of stocks you’ve looked at, liked, and then moved on from because the valuation felt too expensive.
You probably know those businesses well. You understand how they make money. You know why they’re high quality. And yet, they’ve effectively disappeared from your process.
That’s the gap the Decide step is meant to close.
If a business is good enough to reject on valuation grounds, it’s good enough to track properly.
A simple sense-check:
Many missed opportunities aren’t missed because the analysis wasn’t done. They’re missed because the decision process stopped too early.
This brings us to the end of our Mindset SQUARED™ mini-course series.
So far, we’ve focused on building a disciplined process, from identifying high-quality businesses through to making the final decision on when to act. The Decide step is where that process comes together.
In the next newsletter, we’ll look at what happens after you buy. Specifically, how to live with volatility, how to think about price movements once you’re invested, and how to avoid undermining a good decision with the wrong reactions.
That’s often where the real work begins.