Recently, I have seen some articles discussing topics like “Is Value Investing Still Relevant”, “Is Value Investing Dead” etc. I thought I will just join in the fun of this discussion thread since this blog is largely about Value Investing and personal financial management.
The father of value investing is known to be Benjamin Graham and his most famous student is of course Warren Buffett (Who is Warren Buffett’s Mentor?).
What Exactly is Value Investing?
You may come across slight variations in definition but the 4 core principles of value investing are:
- Buy stocks like business ownership – this means when you buy a stock, treat it like you are buying up the entire company
- Buy at significant discount, factor in margin of safety (MOS) – the MOS can be between 10 to 20%
- Make a bipolar Mr. Market your servant – this is in contrast to the Efficient Market Theory, and says sometimes the market is on sale and sometimes it is overpriced
- Be rational, objective, and dispassionate – don’t follow the crowd when you are making investing decision, make your own judgment
Value investing may be one of many ways of successful and profitable stock investment methods but to me it is logical and systematic and will always stand the test of time.
Use of Value Investing To Buy SingTel
I have often referred to the Stock Investment Framework when I buy any stock. Please read that article for details.
I will go through the evaluation process as if I am going to own SingTel, albeit partially and to see if it is going to bring me good returns, either in terms of dividend yields or capital appreciation. I might also want to factor in some margin of safety considering that a 4th telco will begin its operations soon and the competitive landscape will be more intense.
I will determine my buy price, and in this instance say it is $3.70.
Stock market prices move up and down, just like the actual illustration above. But now that I have the “buy price”, I know when to buy. And while prices will continue to gyrate, I will sleep well but may review SingTel’s fundamentals once in a while, may be quarterly.
A quick video to recap Value Investing.
Options to Supplement Value Investing
I am a huge fan of fundamental analysis and value investing at that. And my investment journey has been a long one now.
For beginners, that’s the best place to start, and investing in dividend stocks in particular as the historical performance will provide a basis of forecast into the future.
You might know that Warren Buffett and his partner at Berkshire Hathaway Charlie Munger spend a large part of their time reading, enhancing their knowledge on all aspects of business, companies and industries. And yet both of them have suggested to only invest within their circle of competence.
Value investing and stock investment are not complex but it is also not a piece of cake. Efforts should be put in so that you actually know a company fairly well.
For this reason, I also use options alongside value investing for the US stock market (options are not available in Singapore). Options are powerful if you know it, for example, you can buy call options to own a stock at a fraction of its price.
My article Using Stock Options to Generate Monthly Income will hopefully give you a good introduction.
I would like to end off this article by inviting you to the Options Mastery Programme (OMP) preview workshop. This might be the last preview workshop for the year 2017 with limited OMP bootcamp seats left, so go check it out.
Disclaimer: opinions and comments here are solely for discussions only and not a recommendation for any investment decisions.