Some of you may know I’ve become interested in the stock market within the last two years, and the interest hasn’t seemed to fade away. More specifically, I’ve found an interest in a term coined “value investing.” If this is your first time hearing the term, think of paying someone 50 cents for a dollar. It’s a no brainer, right? Of course, there is a lot more to it than this and is easier said than done. I first stumbled upon this investing philosophy when reading Joe Ponzio’s F Wall Street, which then sparked the flame to dig even further. I’ve since read many other books and articles in pursuit of learning this craft. However, there is still a question I have yet to answer for myself, one that I believe is very important for anyone to answer when choosing what endeavors to pursue. Why choose to wake up and spend the most precious resource, TIME, to work at a particular “thing?” Is it all about money or is there something deeper with more meaning to it? I took the time to deeply examine this question, answering why becoming a value investor intrigues me, and why or why not it’s worth my time. I hoped the conclusion would be it’s more than just money, but I needed to put it all down on paper to see what about value investing is driving me.
Benjamin Graham, the father of value investing, once stated “Investing is most intelligent when it is most businesslike.” As a retail investor I manage my own portfolio and decide what to buy, when to buy and when to sell. I essentially get to be my own boss, and who doesn’t like the idea of that? Although, if I’m going to choose to be my own boss in this game, then I better become proficient at business if I want to be successful. The stock market is not the place to be inept unless you enjoy losing money. By taking a businessman approach, I get to engage in thinking quantitatively and qualitatively, and approach decisions in a pragmatic way. Let’s take the company Apple for an example. See if you can answer the following questions, and be sure to include the “why.”
- Is the company in good financial health?
- Is it run by proficient managers?
- Do you understand the industry it operates in?
- Who are the competitors? Does it have a moat?
- Is the stock trading cheap or expensive compared to the intrinsic value? If cheap, why aren't people buying it?
These are some of the questions I would need to answer if I’m going to invest intelligently and businesslike. As a value investor I can no longer rely on opinions from others and thus need to be able to think independently. If I’m going to think independently, then I must think businesslike to make it through this journey successfully.
By becoming a value investor I will become a better businessman.
You get people involved in something and you’ll be sure to have ego and fear tangled in the midst of it. Having these two ingredients in the stock market is a recipe for an irrational trader, Mr. Market. And when Mr. Market decides not to take his meds are when opportunities arise for value investors. The truth is if Mr. Market was rational all the time value investors wouldn’t have a place in the stock market. I have to use market fluctuations to my advantage and cannot allow myself to get dragged in with people’s fears (selling at lows) or egos (buying at highs). Instead of playing into the emotions and noise created around companies, or the market as a whole, I have to learn to stay in the realm of logical thinking; making decisions based off sound reasoning even when others are running around like chickens with their heads cut off. This is why it’s important I take the time to develop an understanding of the human psyche around finance, and even more importantly, a deeper understanding of myself.
By becoming a value investor I’m opening doors to new subjects.
Who the hell likes to be patient and think long-term these days? We live in a world that is just about instant everything. Instant coffee, instant notifications, instant purchases, instant entertainment, etc. People want things fast and easy! It seems as if long attention spans and long-term thinking are on their way to becoming a lost art. Value investing is completely contrary to instant. Think sloth like. This can be a real challenge for people, including myself. As a value investor time is one of the biggest advantages I have compared to the rest of the herd. I’m not worried about short-term fluctuations in a stock price, because I’m looking five plus years into the future when I purchase a security. It’s all about being patient, swinging only at fat pitches, and then sitting back waiting for Mr. Market to get back on his meds and recognize the true value of the security. I will not concern myself with instant wealth, rather I will focus on becoming rich slowly. And not just rich in the sense of money, but rich in the sense of enjoying the process and the lessons learned along the way.
“The good life is a process, not a state of being. It is a direction, not a destination.” – Carl Rogers
By becoming a value investor I’m continuing to learn patience, and to focus on the process rather than the destination.
Value investing is not easy. It takes time and hard work, and so it doesn’t surprise me why people shy away from it. However, if you can get past this hurdle then I believe you are embarking on an enriching journey. From my personal experience, value investing isn’t just about stock investing, it’s about becoming a learning machine in life. Charlie Munger stated “I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.” Thinking back, it’s amazing to me the direction I have gone since reading F Wall Street and googling the phrase “how to calculate owner earnings.” I’ve certainly learned a lot since first stumbling across value investing, but I know this is just the beginning.
By becoming a value investor I’m becoming a learning machine.
In conclusion, I’m far from being the proficient value investor I want to be, but “poco a poco” or “little by little,” I’m finding my way in this wonderful craft called Value Investing. I also understand why value investing is worth my time, and believe it will carry positive ramifications far beyond my stock portfolio.