process
The Two-Minute Drill
The rule
Before you buy, tell the whole story in about two minutes: why you are buying, what must go right, and what could go wrong. If you cannot, you are not ready.
Where it flips
A neat two-minute story can still be a confident story that is simply wrong. Speaking smoothly is not the same as being right. The fix is to include the 'what could go wrong' half honestly. Revisit the story as facts come in. Do not fall in love with your own telling.
If you cannot explain a buy in plain words to someone at a bus stop, you do not understand it well enough to risk money on it. The drill forces three things into the open. Why you like the business. What exactly has to happen for the story to work. And the honest risks that could break it. Saying it out loud shows the gaps. A 'story' that is really just 'the price is going up' falls apart at once. Written down, it also becomes a checklist you come back to later, to see if the reasons still hold.
A worked example
Arjun made himself tell a paint-maker buy in two minutes. When all he could say was 'everyone says it will double', he saw he had no story and skipped it. That saved him from a 30% fall. [illustrative]
How to spot it
- ·you can state the buy in plain words in two minutes
- ·the story names what must go right
- ·the story names an honest way it could fail
Peter Lynch · One Up on Wall Street