If you mention wealth, you would probably find the term ‘value investing’ in the same sentence. Used by many of the world-renowned investors, value investing is a proven strategy for generating and compounding your wealth multiple times in the stock market. In short, value investing is about buying shares in the right company at the right time and letting the company grow and earn you more profits.
But how do you know which company to buy into and at what time should you buy into it? To get you going, here’s a collection of valuable tips from some of the world’s most successful value investors.
1. “All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.” – Charlie Munger
Think of value investing as doing business. When you purchase the stocks of a company, you’re essentially owning part of the business. Hence, it’s best to understand the market that the business is in before investing in it. To judge how valuable a company is, ask yourself this: “Will business go on as per normal when the economy sinks?” A good business marches on regardless of market conditions.
For example, a company selling home accessories probably wouldn’t make as much in a poor economy because it’s a luxury that most people can give up. On the other hand, a rubbish collection company would still make the same – or even more! – in a poor economy because it’s a service that people will always need. In other words, an evergreen business is a good business.
2. “In the short run, the market is a voting machine, but in the long run, it’s a weighing machine.” – Benjamin Graham
A company may be a good choice for investment, but it may not be immediately apparent. This is because a company’s stock price can deviate wildly from its intrinsic value. This discrepancy in price is due to the investing public’s fickle opinion on a company’s prospects in the short run. In other words, the stock price is the result of ‘the public voting’.
Instead, it’s wiser to look at the company’s track record when deciding on your investment choices. This way, you’re judging a company based on its performance over a long period of time. Numbers don’t lie – much in the way that a weighing machine doesn’t.
If a store that’s about to go out of business suddenly offers huge discounts to clear its inventory, it’ll inevitably become popular with people and lead the public to think that it’s performing well. Always remember to look at the bigger picture before investing.
3. “You can’t do the same thing others do and expect to outperform.” – Howard Marks
While this concept applies to nearly all aspects of our lives, it’s undoubtedly more important when it comes to value investing. The most successful investments are marked by the confidence to act in times of uncertainties and the discipline to keep from being swayed by the opinions of the investing public. But having confidence doesn’t mean rushing in blindly to buy stocks – it simply means doing research beforehand and preparing for opportunities.
4. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
More often than not, the advantage that a value investor has over his or her peers is his or her instincts. That’s great in theory, but it’s not as simple in practice. When those around you are telling you to buy into an attractively priced opportunity with them, do you give in to peer pressure or do you resist the urge? Luckily, there’s Buffett’s guiding principle to fall back on, so the next time you select a company to invest in, be sure to weigh your choices carefully.
$50,000 to $250,000. Check. How about $250,000 to $1,250,000 as well?
Grow your income like magic with value investing.
Thousands of ordinary Singaporeans have used value investing to escape the rigours of their full-time jobs and achieve time and financial freedom.
To learn more about how you can start value investing successfully, click here.