So far our articles have touched on the issues of investment terms, explored companies of various industries and even explored how to decipher financial statements to unlock value.
But we haven’t touched on the key issue of: “WHAT MAKES YOU A VALUE INVESTOR?”
Is There A Single Style?
In my humble opinion there isn’t a one-fit-all style! And that’s the magic of value investing. Like thumbprints, value investors come in all shapes and sizes, with every one of us being unique.
Benjamin Graham focused on “Cigar Butt” companies whilst Philip Fisher went for companies with a long term competitive edge. Warren Buffett himself evolved from a quantitative style to a more business-like approach. Differences also included investments solely in large-cap stocks or a just small-cap stocks. Some prefer to be 100% vested in the Singapore market rather than the Hong Kong market. The differences are more than the stars in the sky!
So What’s The Common Factor?
In Warren Buffett’s 1984 article titled “The Superinvestors of Graham-and-Doddsville”, he tracked the records of investors who stuck by the “value approach” that stemmed from the intellectual patriarch Benjamin Graham. He detailed that Graham’s “children” (Legends like Walter Schloss, Tom Knapp, Bill Ruane and Christopher Browne) whom left his house have gone to different places with various styles but they have had a combined investment record that cannot be explained just by random chance!
The 2 key common factors those legends had from the article were:
1) Investment is most intelligent when it is most business-like:
“While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock”
2) Guided by the “Margin of Safety” Principle:
“You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying businesses. But you do not cut it close. That is what Ben Graham meant by having a margin of safety. You don’t try and buy businesses worth $83mil for $80mil. You leave yourself an enormous margin”.
Characteristics That Value Investors Tend To Have
Some characteristics (Not exhaustive!) that Value Investors have include:
1) Long term horizon
2) Conviction to go with in-depth proprietary research
3) Projections are not our strong suit
4) Ability to learn from experiences
5) To outperform the market, you can’t buy the market
Value In Action
“Knowing oneself is the beginning of all wisdom” – Aristole
Wining the psychological battle is half the battle won. No two individuals are alike; one has to know their respective risk reward appetite in order to be a decent investor for the long run!
We at Value Invest Asia are also firm believers that the adherence to the tenets of Value Investing would serve one well in their investment journey over the long run 🙂
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Cheong Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities. Cheong Mun Hong doesn’t own shares in any companies mentioned above.