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Sat. Jul. 19, 2008

All Intelligent Investing IS Value Investing *

Article sharing is one of the benefits of DIV-Net. Periodically, I plan to post on Dividends4Life some articles originally appearing on The DIV-Net to allow my readers to experience first hand the high-quality authors writing for The DIV-Net.

This article by Old School Value originally appeared on The DIV-Net July 5, 2008.
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As one of the few value investors in The DIV-Net so far, I would first like to touch on what value investing is.

Charlie Munger stated it quite clearly. Intelligent investing = value investing.
By value investing, the general population tends to think of it as bottom feeding and being cheap, but such a statement only holds true in a town called Speculatown.

Value investing is much more than buying cheap companies. It’s just like how we all love to find something great in the sale bin and then brag about it to our friends. It revolves around paying less or a fair amount to its real value, referred to as intrinsic value or buying $1 for 50c.

Benjamin Graham, the father of value investing, stated in his book Security Analysis,

“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

Without data and reasoning associated with an appropriate price tag, this type of activity should be labeled “Get Rich Quick Like That Guy on TV”.

Speculation is darn easy but value investing is difficult. Difficult because it requires;

  1. Patience, patience, patience and more patience
  2. Discipline
  3. No emotion
  4. Going against the crowd
  5. Lots of reading and studying

Many great value investors mentioned by Warren Buffett in his famous speech, The Super Investors of Graham and Doddsville, show the track record of these great investors. They weren’t able to beat the benchmark year after year, but their overall records tell the true story.

Seth Klarman clarifies the idea when saying that

“while others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish”.

This brings me to the point of long term buy and hold. While there certainly are opportunities where the market provides short term no brainer investments, a long term buy and hold methodology will allow an investor to look at the horizon, focus on quality businesses and live a life without the computer.

By investing for the long term in quality companies, we are recognizing that we are the business partners.

As an associate member of the Dividend Investing and Value Network, I hope to bring light to great companies and value investing. I am proud to be a business partner and hope to be one with you as well.

If you enjoyed this article, please visit Old School Value and subscribe to his feed.

(Photo: sanja gjenero)

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4 Responses to “All Intelligent Investing IS Value Investing *”

  1. Jae Jun says:

    Thanks for posting this!

  2. Dividends4Life says:

    It was truly my pleasure. Thank you for allowing me to post it.

    Best Wishes,
    D4L

  3. sirbeef says:

    Yes, thanks for posting this.
    If I listed all my equities, would you be willing to run your eye over them quickly and give me an opinion?

  4. Dividends4Life says:

    sirbeef: Quick opinions aren’t worth anything. I typically spend a minimum of 8 hours analyzing a stock before forming an opinion on it. They change with time, valuations and circumstances.

    Best Wishes,
    D4