This article was first published on May 1, 2014
First and foremost, what is value investing and why does it matter? Value investing is a concept of investment that is discussed regularly but seldom practiced. It is basically an idea first popularized in the book “The Intelligent Investor” by Benjamin Graham.
Treating investment like a business
Currently in the stock market, there are many who mistaken speculation for investment and there is a distinct difference between the two. The main idea of investment is to treat your investment like a business. Unlike a speculator who base his/her investment on charts and tips from friends, buying and selling shares after only holdings them for a few days, an investor seek to find investment that are backed by understanding the real business behind the stock ticker. If we view every investment that we are going to make like a business venture we are able to go into, it opens up a whole new dimension of what investing really is. Our time frame of investing should be years and not days.
Activities does not relate to performance
In most things that we do, we tend to relate the more action that we do, we will perform better. Fortunately, this logic does not stand in the area of investment. If we use Apple Inc. (NASDAQ: AAPL) as an example, a speculator who bought the stock at USD 420 in July 2013 and sold off in August 2013 for USD 460, then rebuying it USD 550 in November 2013 and selling it off again for USD 560 in December 2013 might consider himself a successful trader. However, if we look closely, he has earned USD 50 per share for a stock that appreciated USD 140 per share in the same period. If an investor has just held on to the shares for the entire period, she would have done much better. Actions do not translate to performance in investing.
The first note in investing is to have the right mindset to investing. As the father of value investing Benjamin Graham puts it, “Investment is most prudent when it is most business like.”
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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 Stanley Lim’s personal capacity and do not in any way represent those of his employer and other related entities. Stanley Lim doesn’t own shares in any companies mentioned above.