Chasing Value: Intuitive Surgical's right price

We bought some shares at $180 a share, 50% off it's high. Then we bought more at $140 and $120, at a price we thought we would never see again -- What a bargain!

Mr. Market did not agree with this view and the stock price continued to drop along with the overall market and the concern that hospitals would find it difficult to make large capital acquisitions in the current economic environment -- ugh!

The old adage about not trying to catch a falling knife certainly came to mind, but I followed my own path and bought more at $110 a share, dollar cost averaging into the stock and glad I did not jump in with both feet upon re-entry.

I write this post freely admitting it is not possible to determine the exact value of a stock or if the market will agree with you in the short or long term. On the other hand, all companies are not Intuitive Surgical and I believed there was long term value in this holding even at the $180 price.

"My, pal Warren" has received much criticism for entering the market early and on occasion late, but over the long haul he is unequaled. I believe this may prove true again when the smoke clears over the economy or at least the market.

Intuitive dropped further in March and could have been purchased below $100 share, and if you had perfect timing around $85. I even suggested to some friends wanting to put some cash to work that ISRG was having a fire sale, but I did not buy more at the time. Then over the last week the stock jumped, closing at $135.59 -- an amazing 40% in a week.

We bought more at $118 and are back in the black, but I confess that when I pulled the trigger at this price I did not know if it would go up or down in the short run. It went up which is nice, but what will happen tomorrow -- who knows?

Even not knowing, I do feel very comfortable with this long term holding. ISRG still has no debt, still has a monopoly, still has huge cash flow, and it has an ROE, ROA, and ROIC in the high teens. I am thinking about buying still more but because I think there is still value here but if you ask me what I will pay -- I don't know. I don't know what the right price is. I only know what Buffett himself has said for decades. "better to buy a good company at a fair price, than a fair company at a good price."

Intuitive Surgical has been buying back it's own shares. It is one of stocks I recommended for 2009 See: Chasing Value: 9 picks for 2009 -- APC, GE, ISRG, WFC and more

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of ISRG.