Get started with value investing now

Value investing is a practice. Value investing is spending an absurd, blissful amount of time diving into a company, sector and industry and really understanding the business, the management, and the way they allocate the company’s capital to grow the company in the long term and if the company is a cash compounding machine (as Mohnish Pabrai aims for). 

You want to find a wonderful company, a company that is within your circle of competence and in sync with your personal values. Circle of competence means that it’s within an industry or sector you know – for example if you’re in the building industry you might know and prefer to use certain materials, if you’re a nurse or doctor, there are treatments that you know really works and if you work with marketing, there might be communications bureaus that you believe is going to crush it in the future. Study the companies that you know and value – maybe one of them turns out to be a winner on all the parameters described in the first paragraph. But most likely it is not. Don’t give up – there’s a wonderful company for you out there.

Photo of Signe

Value Investing also about understanding and calculating what this wonderful company is worth and then buy it at a “margin of safety”. The man who made value investing popular was Benjamin Graham. However, the 2021 value investing model is different than what Graham described almost 100 years ago in the 1930’s and 1940’s. Instead of the traditional “Cigar bud” value investing, where an investor would buy a company, any company, at a very low price, the new value investing – for some called mungerism, focus investing, compounding or just simply investing - focuses on finding quality companies, waiting patiently until we can own a part of the business at a discounted price. Buffett started out investing according to the cigar bud method until he met his partner Charlie Munger, who introduced the quality concept. Buffett describes it exceptionally well in one of his annual letters to shareholders:

It's Far Better to Buy a Wonderful Company at a Fair Price Than a Fair Company at a Wonderful Price.

If you like to buy things at a discount, value investing is for you. If you like to read, to grow, to do research and to learn. Value investing is for you.


Comments

Most Popular This Month

Where does Warren Buffett live? Your itinerary to Omaha

5 Myths About Investing and The Stock Market

Guest Article: Michelle Marki's Investing Practice

How to Pay Yourself First