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Value Pick Mantras for Retail Investors

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Value mutual funds are well known to have lower volatility than growth mutual funds. Numerous industry and academic studies have shown that value stocks as a group performed far better than growth stocks in bear market. Many technology and internet so called “growth stocks” lost 90% to 99% of value in just a couple of years after 2000 while many value stocks went up during the same time frame. 

In fact, the single most important element to obtain high investment performance over the long run is to maintain MARGIN OF SAFETY of a portfolio. That is why the greatest investor Warren Buffett once quote  “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”.

I know that I’m going to catch a lot of flak for saying this, and that many people will misunderstand what I’m saying. There are certainly other methods of investing or trading, which made people rich. There are certainly many under-performing value mutual funds, which give people wrong impression that value investing is equivalent of low performance with less risk.  

However, I want to emphasize that in fact value investing is investment style that can obtain high performance with less risk

The nicest thing about value investing is that it will not distract your regular job if you choose not to stare at the stock market frequently in your office. In fact, it is quite healthy to forget about stock market in your office and worry about that only at your home after work. 

Many newbies in the stock market still believe that if they stare at stock price quote closely, they can obtain better chances of winning.  It will not. Staring at the stock quote is least important part of this game. In fact, staring closely at the stock price quote is more likely to create a loser rather than a winner because of greed and fear in the stock market.  The more one is unable to resist the mad mood of Mr. Market, the more likely one is unable to invest successfully with value investment method.I am not saying that successful value investing does not require time. 

The time you will need in value investing depends on the investment vehicle you utilize.  If you invest with a value mutual fund, you will not need much time in stock market and you only need to follow up quarterly with your fund’s performance

You need to start early in value investing !!

Let’s be honest about value investing,  it is not a get-rich-quick scam and it takes time to really make living with value investing without need of your regular job.  You need large starting principle if you want to make living from stock market investment than your salary.  
By reading Warren Buffett’s article above, you can pretty much guess that successful value investors can achieve 20% to 30% per year performance consistently over the long run  regardless of whether market is bear or bull although it is possible to obtain significantly higher performance in earlier investment years due to smaller fund size and luck.  20% or 30% more consistent investment return is already very high return over the long run. Since Peter Lynch retired from Fidelity, you can rarely find a mutual fund with that kind of performance over past many years.    
The best approach is to treat stock market investment as side business in addition to your regular job.  Your regular job help you pay your bills and help you earn the initial principle for value investing.  

Once your investment net worth surpasses $100,000, sooner or later you will realize that your regular job salary can hardly keep up with compounded rate of investment return.  Too many people naively believe that they can get rich quick with speculative trading method in stock market rather than a hard work with a job and value investing at side. It is a lot easier to make your first $50,000 net worth with a job rather than speculation in stock market.

Even if you do not have large sum of money right now as principle to make really big profit out of value investing, you still want to start value investing early so that you can learn in and out of value investing in your earlier years of investing in the stock market.  Successful investment is long term process.

The earlier you start investing successfully, the better off your pocketbook will be, and the quicker you will reach your financial freedom. Let’s do a quick math,  if your starting capital for investing is Rs.50,000 and your annual compounded rate of return is 30%,  you will need 9 years to surpass Rs.500,000 net worth. However, to turn Rs. 500,000 net worth into 1 million, you only need 3 more years, think hard!

See the below calculation – initial investment – Rs 5,0000/-
Year Your Investment
 1  : 67244.44
 2 : 90436.29
 3 : 121626.76
 4 : 163574.47
 5 : 219989.48
 6 : 295861.4
 7 : 397900.69
 8 : 535132.19
 9 : 719693.31
10 : 967907.49
Within 10 years your money has grown almost 20 times!!

Happy investing Guys!!

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