Guest Article: The Mindset of a Value Investor

Today I have another treat for you written by Wes Chambers - also known as @investingwithwes. Wes is an incredibly inspiring and phenomenal investor to follow, and I recommend that you give him a follow on Instagram if you aren't already following him. So much excellent content and I'm truly grateful to be able to share this second guest article from Wes.


Mindset of a Value Investor 

By Wes Chambers

In this post, I am going to break down the mindset someone needs to have before they become a value investor. The 4 main characteristics I am going to mention are:

  1. Business Owner Mentality
  2. Different Time horizon
  3. Demand A Huge Margin of Safety
  4. You Are the Minority

Business Owner Mentality.

To become a value investor, you must adopt a business owner mentality. 95% of investors in the stock market don't think about investing the correct way; they see stock as ticker symbols that bounce around. To become a value investor, you must have the mindset that you're buying a piece of a business and with that business, you own its assets and its financial statements such as income sheet, balance sheet and cash flow statement. Most people can't adopt this mindset hence why there are very few successful people who can beat the market.

You Are the Minority.

What you need to understand as a value investor is that you are the minority. The stock market is not made for value investors and if everyone were value investors there won't be a stock market because if everyone demanded a margin of safety no one would buy or sell. Li Lu has said this many times only 5% of market participants are value investors the rest are made up of speculators. As a value investor, you need to take advantage of the speculators as they are going to be the ones bringing you bargains. You can't let the urge to speculate take you over because that is when Mr Market will destroy you.

Demand A Huge Margin of Safety.

If you are going to be a value investor you must demand a huge margin of safety. A margin of safety is protection against the unknown. A margin of safety almost acts as a self-defence mechanism to protect our investment from unknown events where even if the worst possible event were to happen, we won’t lose money or we won’t lose as much. You must invest with a margin of safety at all times to protect yourself from the unknown like a new competitor entering the market, the business starting to slow down, or you are making an error when you valued the business because we are human, and we do make mistakes. The bigger the margin of safety the more room for error.

Different Time Horizon.

If you are going to be a value investor you need to have a long-time horizon. If you can't think 5, 10, 15 years ahead then investing isn't for you. Most people who enter the market want instant success where they want their investment to go up the next day but if you're a value investor you must know that is not realistic which is why you need to take a long-term time horizon of 5, 10, 15 years out into the future. Very few investors can call themselves long-term investors as it is very difficult especially if you bought a company and you need to wait 3-5 years for the true value of the company to show.

Read other guest articles from Investing With Wes:

How to Prepare for A Bear Market


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