3 LESSONS FROM VALUE INVESTING via Value Edge
The thing I enjoy most about investing is the complexity and how it never ceases to amaze me. It is fundamentally finance related, yet has elements of different fields of studies – politics, real estate, law, human dynamics, psychology etc. One day I could be reading a research by Joel Greenblatt, a renowned value investor and another day it could be by Michael Mauboussin, an expert in the field of behavioral finance. After close to 4 years of investing, I have decided to list the top 3 key points I learnt from investing.
Nothing comes free, especially knowledge. Every successful person in his/her own field did not get there by sheer luck. With value investing, it requires a huge amount of reading, and that reading never ends. Every day, there is something new to read. Reading the latest company news, analyst report, value investing article, the list is endless. One would think great investors like Lee Cooperman, having spent nearly 5 decades of his life doing investment research, now has it easy when it comes to investing. However, that isn’t the case. With a lifestyle starting from 5.15am, he spends nearly most of it working, till before bed at 11pm. That is definitely dedication.
Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More
“Unfortunately one day they’re going to find him slumped over at his desk and that’s going to be it. He’ll die happy.” – Michael Lewitt
While I am not saying that we all need to be like Cooperman, however, to excel in investing, one needs to put in their fair share of work. The basics such as financial jargons, an investing framework and investing theories are all the essential work one has to initially put in. That read of Intelligent Investor for value investors starting out is mandatory, despite how boring it may be. Leading the research team in my University’ investment society, I have constantly been told to make my analysis more appealing and simpler so that even someone without any investing knowledge would be able to understand it. However, many a times, I find this extremely difficult as there are certain basic financial jargons that one is expected to at least have taken the effort to read up on.
A sad but hard truth about value investing is that it isn’t for people who have a constant need for change. Sorry to disappoint, but that adrenaline rush each day of entering in and out of the market one is seeking, is not something you would be experiencing with value investing. With value investing, you are in it for the long game. The secret to value investing is patience. To be honest, it is not really much of a secret since it is a well known fact. However, the reason why value investing still works is that patience is not a trait everyone has in today’s world. With the speed at which everything is changing these days, how many really has the patience to just sit there and patiently wait for the stock to reach fair value. Furthermore, when does the stock price really hit its fair value? That is really a mystery as Graham would say. Would a stock remain undervalued forever? I hope not, but it is not impossible. A fine example would be Guocoleisure (SGX:GLL), a well known deeply undervalued stock. The reason why this stock is undervalued would largely be due to market skepticism over value-unlocking drivers. Many institutional investors like Third Avenue Asset Management and Marathon Asset Management, long time investors in GLL have too sold down their stakes. While the stock may remain undervalued for an indefinite amount of time, however, what we can do is just position our portfolios and just wait. As of today, GLL have started trending upwards given how management started taking steps in unlocking the value in its assets.
Great Supportive Network:
Have a great supportive network. No matter how intelligent you are, there is no way that you have considered every single aspect to a certain issue/investment. In discussions, I rather have more people differing than supporting my view. For every argument you break down, it just strengthens your argument – a great read on this would be the ’12 Angry Men’ experiment. I have always believed in the right of freedom of speech. With freedom of speech, it allows good ideas to thrive and bad ideas to just fade away. Through this process, one’s thought process would definitely mature. This is the same with value investing. Having people provide constructive criticism on your investment idea, allows one to improve their analysis in the future. Furthermore, through the mistakes of others, it helps one speed up their learning process.
Starting out investing, I would say that I was extremely lucky. Not only did I have my father to look through my investment thesis to check if it was sound, I had my best friend who had a common investing mindset. Given that it is the 21st century, I had a vast amount of online resources to read – investment bloggers who were did equity research write-ups and all. Special thanks would definitely have to be given to Musicwhiz and Kyith who replied to my ‘Help’ email on how I should begin investing. I guess it was thanks to the presence of these blogs was I able to skip various beginner mistakes – valuing a company using a DCF model.
To sum it up, for readers just beginning their investing journey, I hope this article would serve as a good starting point. Fret not, for what is bitter to endure, is sweet to remember. While to the rest of us more-seasoned investors, it is always good to look back at this journey of ours, spend some time reflecting on our mistakes and how we have emerged stronger from it.