–Their wisdom can help you earn a fortune.
Value investing is a proven strategy for generating enormous wealth in the stock market. To help get you up to speed on this investing strategy, here is a collection of valuable tips from some of the greatest value investors of all time.
1. “Rule No. 1: Never lose money; Rule No. 2: Never forget Rule No. 1.”— Warren Buffett
Value investing is inherently defensive. A value investor constantly tries to purchase assets for less than they are worth. By doing so, you are protecting your downside and reducing the probability of a permanent loss of capital.
Warren Buffett
2. “In the short run, the market is a voting machine, but in the long run it is a weighing machine.” — Ben Graham
A stock’s price can deviate from its intrinsic value by a large margin. That’s because in the short term, a host of factors unrelated to the actual performance of the business can impact market prices. Yet over the long term, the price of a stock tends to reflect the cash-generating ability of its underlying business, which is what a value investor strives to estimate. Mutual fund is one of the best tools to invest with time which managed by a professional investment company.
3. “You can’t do the same things others do and expect to outperform.” — Howard Marks
Value investing is innately contrarian. When you say a stock is undervalued, you are saying that the current market price is wrong. So to be a successful value investor, you need to have a variant perception — and you need to be right.
4. “Cash combined with courage in a time of crisis is priceless.” — Warren Buffett
To prepare for these opportunities, investors should maintain some dry powder in the form of cash reserves. In addition, you must develop the confidence to act in times of great uncertainty, while still maintaining the humility to realize that you are working with imperfect information.
5. “Move only when you have an advantage.” — Charlie Munger
Many people make the mistake of swinging at too many pitches. The best investors know to wait for an opportunity that falls squarely in their circle of competence. Only then can we hope to have an edge — be it informational or, more likely, analytical — we can exploit to our advantage.
6. “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett
Many times an investor’s edge is behavioral. It can arise from the ability to simply wait for attractively priced opportunities. Yet while it’s simple in theory, it’s not always easy to do. In fact, having the self-control to not give in to greed when all those around you are losing their discipline and chasing gains is a rare ability, characteristic of the most successful investors.
7. “All intelligent investing is value investing — acquiring more than you are paying for. You must value the business in order to value the stock.” — Charlie Munger
Stocks are not just pieces of paper or blips on a computer screen, they represent part-ownership of a business and a legal claim on its cash flows. That’s why a value investor strives to calculate the intrinsic — or true — value of a business. Only then can you value its stock and identify genuine bargains.
8. “If it’s close, we don’t play.” — Ben Graham
Although value investors attempt to predict the future cash flows of a business, you must always remember that even the best valuation models can produce, at best, only a rough estimate. The many assumptions upon which valuation models are built are nearly impossible to predict, and prone to error. That’s why the best value investors look for bargains that are obvious, and pass on situations where the value is less clear.
9. “In an environment with massive short-term data overload and with people concerned about minute-to-minute performance, the inefficiencies are likely to be looking out beyond, say, 12 months.” — Bill Miller
One of the most effective ways to act differently than other investors is to adopt a long-term mindset. Wall Street tends to focus on quarterly results, which are just a tiny fraction of a business’ life. Value hunters who base their investment decisions on the long-term future of a business — say three to five years out, or more — can use the market’s short-term overreactions to their advantage.
10. “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now.” — Warren Buffett
This may be the most practical advice when it comes to value investing — and the most powerful. If you can purchase an excellent business at a reasonable price that goes on to successfully grow its profits over many years, you can do very well as an investor. Purchasing the stock at a bargain price will amplify your returns, but being correct about the quality of the business is far more important.
11. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” — Warren Buffett
The focus should be more on the company itself than on the price of the stock. Not to say price is irrelevant. But Buffett is emphasizing that a good price on a stock of a bad company is still a bad idea. What you want to look for is a good company and then buy it when the stock is priced well.
12. “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” — Warren Buffett
These words are some of the wisest we can consider when it comes to investing. Buffett is dealing with mindset. You’ve got to know you are going to win. It may not be today. It may not happen the way you think it should. But deep down inside you’ve got to know you will win. That will make all the difference.
