This week we look at another potentially adoptable self managed super trustee identity, the "Value Investor".
When I moved from being an institutional broker (talking to fund managers) to being a retail broker (talking to private clients) I remember taking a call from one of my stock market interested brother-in-laws who declared to me that "I'd like to do things the Warren Buffett way".
The Warren Buffett way
"Well that's just grand" I replied, "And just how do you intend to do that? Get the annual reports of the top 200 companies? Analyse the balance sheets and the P&Ls, assess value, go into the stock market and find that "Wow!" everyone's wrong and you're right, buy the company for a below value price and wait for natural forces to adjust the share price allowing you to sell at a profit?"
"And just when are you going to do that" i added "Between running a company, being a father and periodically indulging yourself in one of the most time consuming 'divorce sports' know to man, cycling?" Sorry my friend, but it just ain't happening.
Genius or idiot
When the only organ you have left that still pumps blood is your brain I can think of no better way to spend your time than scanning the market for "value" based opportunities in a captivating game of "genius or idiot". It is the perfect cerebral exercise and at a time of your life when having somewhere warm to go to during the day is a marital necessity organisations like the AIA, ASA and ATAA offer an increasingly social side to the activity with numerous opportunities to get out and about with the "PLU" (people like you).
But whilst all our organs are functioning and whilst we are all busy having a life, taking the time to learn about and practice the art of value investing is simply not practical and we would quickly trip over the value investor's Achilles heel, patience. Value investing requires patience, and a lot of it.Financially tuned
Most of us don't have it. Most of us can't shut our eyes to the volatility in the stock market. Most of us are incapable of fulfilling the sentiment behind those million 'value investment' quotes that are oh so sage but oh so impractical because most of us can't afford another global financial crisis, most of us are on the 'edge' of our financial tolerance already and there is not a man amongst us whose faith in assessed value in the long term would not crack if the edge of our financial envelope approached in the short term. We are too raw from the GFC. We are too financially finely tuned.
The essential qualities of a successful participation in value investing are time and money. You have to be wealthy because you cannot play patience with money destined for school fees and a mortgage and you have to have time, to wait for the market to spot something that you think you've seen but it may never see.
One fatal flaw
On top of all that, I hate to tell you, one of the fatal flaws with a complex assessment of value is that you could be wrong. An assessment of value involves a myriad of facts that might change and assumptions that may not be fulfilled. Only many many years of dedication and experience can narrow the odds. I cannot tell you for instance how many value investors identify value in companies that will go bust. It's because the companies lie and the assumptions are wrong. How would you know that from your unit in Bendigo?
But look, I've killed the dream without telling you the good bits. The good bits are that if you do have the time and you do learn the skills and you do have the 'financial patience' then value investing has integrity. It is also one of the few approaches that do not offer some tempting but unrealistic shortcut. At its worst it is a great filter for identifying bad stocks. At its best it is a disciplined structure for stock assessment that works. If you can do it, it knocks the socks off any other. For those that want to pursue it let me plug Roger Montgomery's book "Value.able". It'll get you started without you having to read boring old unfriendly textbooks. Its on Roger's website www.rogermontgomery.com''
Marcus Padley is a stockbroker with Patersons Securities and the author of the daily stockmarket newsletter Marcus Today. For a free trial of the newsletter, go to www.marcustoday.com.au
Marcus Padley Stockmarket Secrets is a book for the current financial climate. With global markets crumbling, and many of the world’s leading markets entering into depression – the likes of which we’ve never experienced before – the time is ripe for a straight-shooting approach to money, wealth and investment.''
