Value Investing Strategies

Value investing is not a sure-fire way to get rich, however, there is now magic formula to getting rich in the stock market.  The best way to get rich long-term is to invest prudently and conservatively.  You don’t want to get rich quick, but get rich slowly!  You want to stick to the basic principles of value investing.

We want to scour the world looking for dollar bills we can get at a discount.

Keep the Emotions OUT Of Your Investments

Once you have an average IQ, what differentiates great investors from poor investors is the ability to control your emotions.

  • Don’t try to get rich quick
  • Don’t follow the crowd

Most of the time the best decision is to do nothing!

Follow The Approach of Warren Buffet

  • Don’t short
  • Hold a concentrated portfolio of a number of stocks that you feel will do well over a period of time (~20 stocks)

What Companies Are Interesting to a Value Investor

The market for finding undervalued companies is very different because of the internet, stock screeners, and trading platforms.  We need to look for pockets of inefficiencies.

  1. Look at businesses that are successful in Western Europe and North America and look for similar companies in emerging markets.
  2. Look at commodity prices.  Where commodity prices have fallen and companies are tied to the commodity price, the company should be cheap right now.  Ex:  When oil slides, invest in oil stocks if you believe oil will rise again.
  3. We want an eclectic group of ideas that span ideas and industries.  Intelligent diversification.

Ideally, your investment should be solid within a 2-5 year range.  Simply if you have to wait more than 5 years for your idea to work, it becomes harder and harder to make a meaningful profit.

Lessons Learned from Warren Buffet

  1. Read the annual reports from companies Warren Buffet invests in and try to learn why Buffet invested in those companies.
  2. Don’t only pay attention to what Warren Buffet says, but also pay attention to what he does because often times there are subtle differences between the two.
  3. Warren invests in very large companies.