Value investing is not something you start doing one day out of nowhere. It is an extremely complex subject that should be thoroughly studied and analyzed. When I was starting to research and study it, I was completely overwhelmed with the amount of information and options available.
Should I pursue investing or trading? Should I buy stocks, bonds or funds? The amount of information and the vastitude of options left me with many unanswered questions. Slowly I started to drift towards investing and more specifically to value investing. Although some argue that every investment is a value investing, there are lots of different approaches when it comes to choosing which stocks you should own.
Trading is not for me. It requires extreme attention to detail and depends greatly on the short-term. Personally, I can’t deal with the amount of daily stress it would cause me. Although sometimes I trade a few options, most of the time I stick with stocks. I greatly admire a number of traders, mostly because of their ability to control their emotions and make accurate short-term predictions. It is an art that is only mastered, by a few people. I should add that it requires consistent monitoring of the short-term fluctuations of the market. No matter how much I enjoy the markets, I hate to watch tickers every day going red and green. It bores me and stresses me. My investing approach allows me to check on quotes once or twice a day. Sometimes, I don’t even check the quotes for one or two days. The short-term price and fluctuations tell me nothing about the company or its operations. I would rather focus my energy and time on reading news, and financial reports. That is where I am actually able to learn something and get information from. The price is nothing but the market consensus value of a certain business, which is not always accurate.
Stocks are by far my favorite investment vehicle, mainly because you can easily get exposure to many sectors and asset classes. Let’s say you know that corn prices will go up, you don’t have to buy a futures contract to directly capitalize on your prediction. There are certainly a number of stocks that have some exposure to the price of corn, and that is where I try to focus my attention. Over the years it has allowed me to capitalize on differente trends, and my focus on value stocks has proved to be the best strategy.
Value stocks are essentially companies that are priced lower than what they are worth. There are a number of ways to conduct research and find these very profitable stocks. Depending on the company, and the price paid, I might hold for a considerably short-period of time, like six months or a year. If the company has a competitive advantage or its growth in the future is higher than what the price of the stock indicates. I may hold for a longer time period. Some of the stocks I buy, I never intend to sell based on the price that I paid, I believe they are great long-term holdings that should never be sold. Unless the underlying story for the company changes or the industry in which it operates I don’t touch them at all. Avoiding investment mistakes, in the beginning, is also very important as it can hinder your results in the long-term.
I don’t use a single process to find the stocks I end up value investing in. It is similar to cooking, there are multiple very good recipes for the same dish. All of them have a distinctive process, but the final product will always be similar. I may look into traditionally “growth stocks”, but given the price, I expect the company to grow even more than the expectations.
Charlie Munger coined this expression which is helpful in explaining what I essentially do: “Basically, all investment is value investment in the sense that you’re always trying to get better prospects that you’re paying for”
With the intention of sharing some of the research, and some of the more unknown stocks I usually look for. I decided to start my own webpage so that I could help investors get more information that they can use to make their investment decisions. All the research I was doing was just useful to me, and putting an article together summarizing all of the conclusions I have reached on a specific company. Seemed like the perfect way to give back. I was fortunate enough to learn a great deal from many people, and I feel it is important to give back and share the same knowledge I might have.
Investors are constantly overwhelmed with news and ratings on different stocks. It is sometimes difficult to maintain your investment strategy and focus and what you should be doing. For that reason, the focus should be on researching the business behind the stock. Short-term price fluctuations tell you nothing about a particular security, other than the price. The underlying value is what will determine the price in the long-term. I should add that apart from some specific situations, when I am looking to add a new stock or sell one. I rarely check quotes more than two or three times a day. In the meantime I focus my attention on researching and reading news, which will provide me with some knowledge to back up my actions on the stock market.
Achieving financial freedom can be done in a number of ways and one of them is Value Investing. There are multiple paths you can take to reach that final goal. Focus on something you understand and you are passionate about, that is the key to life. Doing what you love will provide you with everlasting satisfaction. Eventually money and your financial freedom will be one of the outcomes of that decision.