Value investors don’t believe in getting rich quick… instead they believe in getting rich wisely. That’s why we’re talking about patience in investing and how it can save you money.
The investing world turns into a mad house whenever the market fluctuates, a big rumour hits the fan or something like Brexit happens. But, trying to take short cuts, acting over-confidently or even attempting to avert loss, won’t land your bum in the butter. If you’re a value investor, then that means you’ve done your research and should stick to your long-term strategy. One of the most intelligent investors, Warren Buffett, explains it like this: “Only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years,” because the worst “risk comes from not knowing what you are doing”.
That’s why we’re outlining how to know what you’re doing, and how to build a value investing strategy that’s based on patience with 3 key factors.
How to Invest in Stocks: Patience is the Key
3 Factors for Investing in the Long-Term
1. Contrarian Investor
The investing world offers no shortage of information and advisement… which is what makes it so dangerous. There’s an opinion and argument for every direction the market could take, and these are shared freely. That’s why we suggest taking caution. Most advice is untrustworthy, because it’s based on rumour, reaction or over-confidence. Our recommendation is to build a network of stable connections that you trust, and which you know share the same long-term vision as you, in order to be able to receive information that you can count on. Even then, weigh this information against your own opinions and experience. Take a contrarian approach to investing by identifying the unloved stocks in the market, then buy them cheap and sell them high. It’s all about patience.
At a point, you will need to take a leap of faith… but the starting point of any good value investing strategy is based on fact. Once you’ve understood which are good potential investment opportunities for your strategy, research these stocks and how they might perform in the months and years to come.
The key is: Don’t rush. Patience is the real virtue of good investing. Take time to be considered and follow the correct process. Many investors will only look at a company’s revenue and profit to make their decision, but there are other important factors to consider. We recommend the 3-dimensional approach to value investing research. These dimensions are: Fundamental Analysis, Valuation, and Timing. As a short introduction, we've explained these dimensions for you with quotes from our 3D Value Investing eBook.
- Fundamental Analysis: A method that you use to gain a better understanding of a company, its intrinsic value and its future prospects. Essentially, you want to determine the value of a company so that you can identify if it's a good or bad investment opportunity.
- Valuation: Our valuation process helps us to determine the fair value of businesses and ultimately find value in the multitude of global investment opportunities.
- Timing: It's important to buy shares that will swing right back from a dip and increase in value over the long-term, rather than investing in a share that will fall even further. The STRIDE timing engine helps us to: 1) Identify the recovery of a stock after a large dip, and 2) Find good targets that are already experiencing upward momentum and have not suffered a dip.
Diversification is a way of mitigating risk, which is key in value investing. Correctly diversifying protects you from the “herd mentality” that most of the market is made up of, and so allows you to survive market fluctuations. We’ve written extensively on diversification and how to approach it in your strategy, but the most important thing you can do is put aside time to include it in your strategy.
If you enjoyed this blog, but want to know more about the details in effectively running your portfolio, simply download our Practical Guide to Value Investing below.