OID: I suspect that you're just trying to cheer us up, but don't stop.
    Nygren: But if you look at what we expected out of those businesses and compare it to what they've delivered, you'll see that we grossly missed the fundamental picture. In Philip Morris, the litigation environment turned much more negative than we anticipated. In Mattel, not only weren't the fundamentals in their basic business as strong as we'd hoped, but there was disastrous allocation of capital. So there were permanent value reductions, not just what Buffett calls "quotational losses".
    And I think that may help point out another difference between us and a lot of my value peers: I'm not always a believer that a lower stock price is a better opportunity.

OID: No problem. We can just edit this portion out.
    Nygren: Frequently, the cheaper a stock gets, the more many value managers will love it. On the other hand, I tend to react very strongly to fundamental developments in companies. So in the case of a stock whose price is getting cheaper while its fundamentals are unfolding the way we'd hoped, you'll find that I'm very content with it - exceedingly patient and happy to buy more when it's down.
    But when the fundamental environment deteriorates from our expectation, I'm reluctant to add to something. And I don't like the cockroach theory. However, it's probably the quickest way to explain it…

OID: There's never just one cockroach in the kitchen - when there's one, there's a lot more.
    Nygren: Exactly. We get invested after things have already been disappointing. And we've tended to find that if they continue on a disappointing path after we buy 'em, there have usually been problems. When a stock we own has been weak in the presence of weak fundamentals, in our experience, its fundamentals have subsequently continued to deteriorate.

OID: And yet you say that you typically begin buying a stock when its fundamentals are weak. Isn't there something of a contradiction there?
    Nygren: It's not science - it's art. But when we buy a stock that's down substantially after a disappointment, it's our research department's judgement that the problem is a cyclical, not a secular, problem. But when the next negative surprise - or the one after that - comes out, I think you have to go back and revisit the whole hypothesis: Is it really a strong company experiencing a one-time or cyclical weakness or were we just wrong - are there in fact secular problems with the business or its model?