Value investing is BOOORRINNGGG!!!

Value investing is boring! I can hear some of you shouting “HELL YEAH!”. It’s boring because sometimes we need to wait for eons before our investment reaches the intrinsic value. It’s boring because we don’t get instant gratification and prices take a long time to move (I know you are thinking about Kingsmen!). It’s boring because we need to sit still and have to control those itchy hands of ours.

Value investors need to have lots of patience and discipline (and I really means LOTS). When we buy into a stock, we should not expect to make money immediately. In fact, we must be mentally prepared to lose paper money in the short-term. It most probably will take a long time for the stock to rise up to the intrinsic value. In the meantime, we need to sit still like good boys and girls and not meddle with our portfolio. The trader in us always wants to do something like sell off when there’s a small profit and cut loss unnecessarily, thinking we can buy back later. We have to control the urge to do that and remember that we are in this for the long-term. If the business fundamentals are intact, we should just sit on the sidelines and not do anything. When the price dips and goes down tremendously, we must have the discipline to not hit the sell button out of panic (provided the business is still flourishing).

Currently, some stocks in my portfolio are down and my China ETF is down 10% as of today due to the negative market. I’m willing to hold on to them as I believe they are undervalued and have lots of room for capital appreciation. I do feel emotional at times when my stocks are down but I need to keep on reminding myself that I’m in this value investing business for the long-term and am not here for short-term gains. Having more patience and discipline is what I need to work on and am working on it constantly. For the short-term, the prices fluctuate up and down but value is what I get for the long-term. Value investing is not easy due to the strict discipline and patience we need to have. This might explain why not many are into value investing. Having said that, those who have control over their emotions will see tremendous benefit for the long-term and I believe in this. Many have been there, done that. People like Benjamin Graham, Warren Buffett and Peter Lynch are/were great value investors due to their emotional control and they have shown us that it can be done with the right skills and attitude.

Actually, contrary to the title, value investing is not boring and I need to confess my love for value investing. I feel value investing is one of the best ways to accumulate wealth. All that is needed is just a bit more of mental fortitude so that we don’t succumb to unwarranted actions that will affect our portfolio.

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10 thoughts on “Value investing is BOOORRINNGGG!!!

  1. add some quant/macro overlay to your value investing, you would have been able to foresee the recent market weakness esp in china =)

    • Hi Student,

      I bought into China as I see it being profitable 10-20 years into the future. I’m not too concerned about the short-term fluctuations in the economy. Thus, I am not selling out due to the cooling measures/raging inflation or the recent market weakness that you have mentioned. But I will still monitor the situation nonetheless. Thanks for your thoughts.

  2. Hi FFN,

    Actually how do you know that while waiting for the stock to reach its value, the price of the stock has yet to reach its value or will never reach its value? What happens if you hold for 10 yrs and found out that it’s a dud?

  3. Hi FFN,

    Well Value Investing may be slow but it’s not boring in the strict sense. There is always that sense of discovery as you continue to monitor and assess your companies’ businesses. It’s hard work and frankly takes up a fair bit of time. I don’t believe in Buy and Hold, it’s more of Buy and Monitor Closely (the fundamentals, not the share price of course).

    La Papillion,
    You have to review if every now and then to see if the valuations are fair and if the business is still going strong. Look at the industry, analyze the numbers, look at the business models, study the competitors etc. It’s all very time-consuming and hard work, but ultimately it can pay off with very good rewards if you are willing to stay the course.

  4. Hi Phileas,

    That’s true as well!

    Hi LP,

    Before buying any company, we have to thoroughly analyse it first. And like MW has said, we have to review our purchase after every quarter and every year. Having bought a company that has been performing well for the past 5-10 years, it’s unlikely it will turn out a dud in the future. The management running the company must be honest and competent as well to reduce the chances.

    Hi MW,

    I don’t mean boring “boring” but “boring” because there isn’t something to do with it everyday unlike watching a TV or playing games.

  5. Hi FFN,

    I know all these stuff, it’s all in the books. But do think about the questions that I asked. It’ll be the trial of fire for value investors during the toughest time. If you’ve not gone through the self doubting phase during a severe bear market, you might not be able to appreciate fully (by that I mean suffering emotionally and financially) what it means by conviction.

    Thks mw for explaining.

    Not to say I’m a lao jiao of course, but I must say the experience of gng thru a bear might just change your belief system.

    Anyway, why do you think the China ETF will do well in the long run?

  6. Hi LP,

    Value investors might have self-doubt during a crisis because they don’t have enough conviction in what they are doing. If they believe in the company and in the methods that they are employing, and if the share price drops, they can buy more provided price is lesser than intrinsic value with a margin of safety. Even in life, in your darkest days, if you believe in yourself, you can rebound from any setbacks easily.

    I have not been through a severe bear market or a full economic cycle as I started investing only in June 2009. However, if prices go down further during a severe crash, I will buy more of my company if the company’s value in intact. I have done this myself with Thomson Medical Centre and a few other stocks I’m holding during a slight correction that happened last year (can’t remember exact month). I think a trader’s psychology is different from an investor’s psychology in the sense that investors can take advantage of both rise and drop in prices. Pls correct me if I’m wrong as I’m not really a trader.

    To answer your question you asked in the first comment, value investors demand a margin of safety from the intrinsic value calculated. Personally, my MOS is 25% – 50% discounted from actual intrinsic value calculated. My MOS is dependent on how I deem the company. Also, how can investing in companies like Mastercard, JnJ, PG and all those mega wide-moat companies prove to be a dud, especially during a crisis? Also, value and price won’t say convergent for a very long time and this has been proven by many well-known value investors. Price and value will meet in the future. The only question is when. This is something like reversion to the mean. I posted two posts on this some time back at https://financiallyfreenow.wordpress.com/2011/01/27/the-abcs-of-investing/.

    Lastly, I believe in China and the emerging economies as that’s where the next shift of power is going to be and it’s already happening. Everyone is talking about this and the talk itself may be a self-fulfilling prophecy. Chinese economy is heated up currently due to its rise and I believe things will stabilize in time to come and I have time on my side to wait for next 20-30 years. And the SSE 50 index is undervalued according to relative P/E valuation around the region.

    Hope I didn’t sound too direct. I know you have years of experience in the market LP and I really respect that. And thanks to your questioning, it helped to reinforce my belief in value investing. Cheers!

  7. Something out of topic but funny.
    I got this goggle sheet from a friend of a friend of a friend (who posted it on facebook…funny how you can access to people you totally do not know).
    Anyway, he is ranting about the CPF going to be raised to $223K in 30 years time. (Another one yelling for change I guess) When I saw the excel sheet, I smiled at his simplicity but it also make me realise that the vast majority seemed to have an awakening in their fiancial positioning. Oerhaps education or easy acess to data due to the internet.
    Anyway, here’s the excel sheet if you are interested.

    https://spreadsheets.google.com/spreadsheet/pub?hl=en_US&hl=en_US&key=0AiU7X6T1SU7jdHlmZ3llUEM1RzdQaW03TDBPcnc1UXc&output=html

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