Value investing dogma

I finished re-reading a book called “F Wall Street” last week. It is a very interesting book with an even more interesting title. It teaches readers why not to trust stock brokers, how to invest in strong companies and why is cash the most important thing for a company to grow. I want to quote a few rules I came across in the book that would be useful for value investors. Here goes:

If intelligent investing were a religion, these would be its commandments:

  1. Never invest in anything you don’t understand.
  2. Price follows value over the long-term. (Reminds me of my post on “Myopic Investors”)
  3. Price volatility does not imply any additional or reduced risk; risk is the price you pay and your evaluation of the opportunity. (Also, remember price alone determines your ROI)
  4. The stock market is a place to buy and sell businesses (yes, businesses), regardless of myriad of other (or faster) ways to make or lose money in stocks. (You are actually a business owner when you buy a stock, so think like a business owner and think what will increase your business’s value in the long-term)
  5. There is no tomorrow, only “five years from now”.
  6. Earnings are for the accountants; business owners rely on cash.
  7. A great business is one that will survive the bad times, so wait for the bad times to invest in great businesses. (Think recession. It’s the best time to scoop up businesses at rock-bottom prices. It’s like an incredibly crazy sale that will only come once every few years!)
  8. Unless a piece of news affects the business and it’s filed with SGX or SEC (for US companies), treat it as noise. Analyst opinions and general market trends do not affect the business of your company and are not filed with SGX or SEC.
  9. If you don’t have a margin of safety, you don’t have a good opportunity. Wait till the price is right.
  10. It pays to be patient. Practice “assiduity” (sitting on your ass and doing nothing) till the opportunity arrives.
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