As Investing is both an art and also a science, similarly different people can have a different definition of value investing – I can share with you mine in a few short paragraphs:
It is essentially buying the stock of a cheap and good business with a large enough competitive advantage so that it will not erode easily when going against competitions in the long run.
We have to be very selective about the type of stocks that we buy by analysing their business model as well as the overall industry trends.
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When buying the stocks, always remember to have a substantial margin of safety in order to minimize our risk by buying it way below their intrinsic value.
As a value investor, we have a long-term investing horizon of at least 3-5 years and during bear market, we have to believe in the true worth of the business and be patient – if it is a truly good business, it is only a matter of time before it goes up and while waiting, we are getting dividends.
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I do not believe in buying or selling stocks based on chart indicators but I have no problem with people who do that. Having said that, I’d rather follow the methodology of the world’s most successful investor of all time, Warren Buffett.
““If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”- Warren Buffett
“The big money is not in the buying and selling…but in the waiting”- Charlie Munger (vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett)
In conclusion, a few questions that we can ponder on:
- What constitute as a truly good business
- If we think the underlying business behind the stock is a good business, what makes us think that we are smarter than the person on the opposite end selling the stock to us
- How cheap is cheap for us to buy the stock
- Will that stock of a good business remain cheap forever- commonly known as a value trap
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