Value investing is simple to understand but difficult to implement. Value investors are not supersophisticated analytical wizards who create and apply intricate computer models to find attractive opportunities or assess underlying value. The hard part is discipline, patience, and judgment. Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing.
Interpretation
Value investing is easy to grasp conceptually but requires significant personal qualities to execute successfully.
Seth Klarman emphasizes that while the principles of value investing can be understood readily, the actual practice demands a great deal of personal attributes such as discipline, patience, and sound judgment. These qualities are essential for investors to filter through various options, remain committed to their strategy, and make informed decisions at the right moments.
In practice
This quote could be used in an investment seminar to illustrate the psychological aspects of value investing.
If you are predisposed to be patient, disciplined and psychologically appreciate the idea of buying bargains, then you're likely to be good at it. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that's great, but you're not a value investor, and you shouldn't be one.
It sounds kind of crazy, but in times of turmoil in the market, I've felt a sort of serenity in knowing that I've checked and re-checked my work, one plus one still equals two regardless of where a stock trades right after I buy it.
Investing is the intersection of economics and psychology.
While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology.
Value investing is risk aversion.
Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.
Just because you buy a stock and it goes up does not mean you are right. Just because you buy a stock and it goes down does not mean you are wrong.
Time is on your side when you own shares of superior companies.
Read Ben Graham and Phil Fisher read annual reports, but don't do equations with Greek letters in them.
Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
You're looking for a mispriced gamble. That's what investing is. And you have to know enough to know whether the gamble is mispriced. That's value investing.
There's quite a bit of evidence that even professionals don't show any ability to pick stocks or to predict market rollbacks. Most of the people we identify as skilled based on returns have probably just been lucky.
Subscribe for the occasional hand-picked quote. No noise.