Value investing consist of doing lots of research, saying no to thousands of investments opportunities, buying only when something meet all the criteria, and then waiting for the market to recognize the value of the undervalued investment you found. Eventually the market always recognizes value but it can take years for that to happen and we will also discuss strategies on how to shorten the recognition of value but nevertheless, excluding a bit of portfolio rebalancing, there isn’t much short-term excitement in being a value investor. Provides the highest returns with the lowest risk, something to be very excited about. To put in it the words of Nobel Prize economist Paul Samuelson:
“Investing should be like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas.”
Samuelson’s Quote grasps the essence of an everlasting wall street battle between investors and speculators. It is extremely important to know who you are before you apply any kind of investment strategy as you cannot go against your nature for a long time. Trying to be a speculator while you are inherently a value investor will lead you to make the wrong speculations at the wrong time while you are a speculator at heart, you won’t have the patience to look for a proper margin of safety in an investment, nor the patience for the value of an investment to get fully appreciated by the market.
“Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.”
“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
“If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” — Ben Graham
It is an excellent idea to pay attention to the stock purchases of respected investors; however, blind coat-tailing is merely an advanced form of speculation. If one does not understand a business or attempt to ascertain the intrinsic value of the stock, it is impossible to make an intelligent decision as to when the stock should be purchased or sold.
If you buy a stock simply because you believe it will rise or simply because it has dropped precipitously, you are speculating rather than investing. Buying stocks following a huge drop is part of every value investors arsenal; however if you have not attempted to ascertain the intrinsic value of the stock then you are speculating instead of investing.
Common stocks have one important characteristics and one important speculative characteristic. Their investment value and average market price tend to increase irregularly but persistently over the decades, as their net worth builds up through the reinvestment of undistributed earnings– incidentally, with no clear-cut plus or minus response to inflation.
However, most of the time common stocks are subject to irrational and excessive price fluctuations in both directions, as the consequence of the ingrained tendency of most people to speculate or gamble–i.e., to give way to hope, fear and greed.
Being against speculation is almost like being against sin. But speculation really is a sin to the untrained member of the public. The ordinary man is more apt to get poorer by speculating on the market. A man can earn some money by taking a sensible attitude toward investment, but I don’t see how a man can earn money by being an untrained speculator. He just doesn’t put enough into it to justify the hopes of getting something out of it.
Therefore, it is extremely important to understand who you are, an investor or a speculator.
“It amazes me how people are often more willing to act based on little or no data than to use data that is a challenge to assemble.”
Bulls don’t read. Bears read financial history.
“Value investing was once the purchase of tangible assets at levels below their market value. Value investing today is buying sustainable competitive advantages at a good price.”―