This article originally appeared on The DIV-Net July 5, 2008.
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;
- Patience, patience, patience and more patience
- No emotion
- Going against the crowd
- 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.