You might find a company currently trading below its historical average Price to Earnings Ratio by more than 50%. Then you realized that although the company has a track record of increasing earnings and dividend for the past 20 years. Investors who have bought the shares a decade ago might be sitting on gains of more than 500%. The company is also giving out a dividend yield of 5%. Your whole process of analysing the company might not be more than an hour. You think to yourself, can it be so simple? What did I miss?
You ponder and ponder on the thesis while the share price of the company continue to climb day after day. Until the point where you can no longer bring yourself to buy it. It ended up being a missed opportunity. Has something similar ever happen to you? We call this opportunity cost and it is not uncommon. Many times, the more obvious a bargain seems to us, the more suspicious we are against it. Because we felt that great gain must come from great discoveries and long hours of pain staking analysis.
However, I believe that is where the issue lies. We mistook the effort needed to uncover a hidden gem with the gains from the hidden gem. However, the value of investing is coming from having a strong foundation and process. And to have a strong investment foundation and a vital process is the result of many hours of training yourself in this craft. As the Chinese saying goes “The performance of 10 minutes on stage is the result of 10 years of training off-stage.”
Value In Action
Therefore, if you have done your training well and already have a strong investing ability, do not doubt your own judgment. Sometimes things appear simple because you have already been trained to decode the complex portion without realizing it yourself.
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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.
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