“An Investment in knowledge pays the best interest”
“An Investment in knowledge pays the best interest”
16 Jun 2017by Research and Ranking
According to one recent survey we lose 6 nights’ sleep each, on an average, every month. Hence over a year 71 nights’ of sleep is lost; that’s more than 2 months out of every 12 months.
The unfortunate part about this remains that we self-inflict most of our worries. We score, a ‘Self-Goal’. How? Let’s consider the different investment approaches that any investor is likely to adopt.
The first approach follows the ‘Deep-value’ investing style. Benjamin Graham practiced this style of investing. Simply put, Deep-value investing is ‘buying dollar bills for 40 cents’ as explained by Buffet. Essentially, this means, buying a stock of a company at a deep discount against the value of the assets. Deep-value investors require a minimum gap between the ‘Price’ and the assessed ‘Value’ in order to buy. This minimum gap is referred to as the ‘Margin Of Safety’.
Deep-value investors wait for the gap between the ‘price’ and the ‘value’ to close. Over time, the gap between the ‘price’ and the ‘value’ shrinks, and the deep-value investor may sell the stock which is priced closer to the Value of the stock hence making profits.
This approach is what Buffet called a ‘cigar butt investing’ approach. The cigar butt found on the road has only one puff left in it and may not offer much of a smoke, but the bargain purchase will make that puff all profit.
The key is to monitor continuously the ‘price’ as it approaches and achieves the assessed ‘value’. Will every investor like to be doing this at the cost of losing sleep?
This is more commonly seen with mediocre businesses that give a window of quick profit but does not create value for the stakeholders; instead they destroy business ‘value’ over time. In such businesses selling the deep-asset bargains quickly is the key (even at times if the stock price does not appreciate much!).
With such businesses the ‘value’ will decline and the initial ‘margin of safety’ will shrink, even if the stock price does/doesn’t go up. Most often a slight speck of negative news will see the price plummet drastically as the ‘price’ has artificially gone up without rhyme or reason as core business fundamentals are found lacking.
Buffet quoted ‘Time is a friend of the wonderful business, enemy of the mediocre’. As Charlie Munger said ‘If you buy something because it’s undervalued, then you have to think about selling it when it approaches your calculation of intrinsic value. That’s hard’. Investors are forced to sell before the value erosion hurts the stock price.
Will every sensible investor like to keep an alarm clock next to their bed should they not lose the opportunity to ‘buy’ or ‘sell’ when most favorable? Remember the golden rule, ‘You can’t time the market’!
Instead of buying companies with deteriorating values, why not buy companies that grow value over time? As Buffet said “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price’.
What is a good company then? A good company is one that can continuously grow ‘value’ through its operations. It is one which will be worth more tomorrow than it is today. Time is friend to these companies. The art is to do a long term investment in the company at a reasonable price, and you don’t have to worry about selling. The price of the stock may fluctuate but will always follow the direction of value which keeps increasing over time. In such companies, you will find opportunity to add to your position at lower valuations, though not necessarily at lower prices!
Note in the diagram below: The Value of the business is growing; over time, the stock price will follow the value and also move higher.
You don’t have to stay alert with a business that is steadily growing and cranking out cash! As an investor you deserve to sleep better!
Unfortunately, the first and the most important aspect of finding the good company or the wonderful businesses and building a long term based wealth management plan is a true challenge which not many enthusiastic investors have expertise with.
This is where Team ‘Research & Ranking’ comes in with their expertise of building long-term wealth management portfolios with an added cherry of building customized portfolio for every individual. The art and science of recommending great businesses which compound generating value and hence returns for the shareholders is something unique to Research & Ranking. This also enables the investor to look at only the recommended stocks to buy without losing their sleep in tracking these companies / stocks.
The net result, with a customized and personalized approach to making your money, ‘grow your money’ you will not only sleep better but have more time at hand to enjoy quality time with your family and your loved ones.
Interested in learning more about our wealth creation strategy and what our personalized portfolio holds for you as a ‘peaceful-sleep’ based Investment reward? Leave us your query and what you expect from your investments, our expert will get in-touch with you.
Written by Manish Goel and Sanjeev Anand with Inspiration credits to ‘Charlie Tian’s book ‘Invest Like a Guru: How to Generate Higher Returns At Reduced Risk With Value Investing’
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