“Thats why the philosophers warn us not to be satisfied with mere learning, but to add practice and then training”.(Epictetus, Discourses)
In investing,the goal is very simple: “Investing is laying out money now to get more money back in the future-more money in real terms, after taking inflation into account”.
We already know many people forget that and start to say that investing is merely speculative and not an investment at all. Another idea(including mine) is that the investment world purposely uses a variety of investment products and instruments that make it even more complicated for a layman to grasp, just to try and take advantage of their savings, while charging them outrageous fees.
Out of all instruments I know (preferred stocks included), common stocks are the only thing that I consider pieces of a business. And, as a business man and business owner, I assess stocks and analyze a publicly traded company using that caveat. I have just one approach when I’m buying a business’s stocks: I act like I’m buying the entire business. Whenever I am taking a business into consideration, the first thing I check is if it is a business I understand or I have experience with. It must be within my area of expertise. Over time,I’ve created my own ‘filter system’ and I’ve started to filter out the characteristics of the business that I don’t like. If a business or a corporation makes it through those filters, I move on to my ‘evaluation’ phase. When I figure out the intrinsic value of an entire business, I ask myself if I’m also able to predict what will happen with this business in the future. Only then do I check the actual market value and the price of the outstanding shares.The concept of ‘Intrinsic Value’ and ‘Margin of Safety’, (combined with as much understanding of accounting as possible), complete my set of mental tools and analysis. However,I will say that it’s all a lifelong process that everybody has to figure out for themselves.
So, why after many decades of studying and learning from Graham, Buffett, and Value Investing, do most students forget to just keep it simple? They tend to use the concepts and tools that they’ve learned and studied (or developed themselves), and forget the basic lessons of Value Investing. For example, they often fail to focus on accounting and instead focus on irrevelant things. Or they underestimate how much they can learn from a Nebraskan woman with a cart that created from scratch the biggest furniture store in the country.
Learning from real life experiences is the way to go; the ‘hands on’ approach of ‘just doing it’. Simply studying a bunch of formulas and theories doesn’t work….at all. You can’t learn how to drive a car or fly a plane by just studying the manual
I’ve noticed that many young “investors” or “professional money managers” learn and study one thing, but then put into practice something else, without being consistent or rational. It would be much more advantageous to merely practice and apply one investment philosophy.
The first thing you have to check before going into the investment business is if you are emotionally capable of handling ‘real investing’.
Not only applying what seems to be right theoretically, but also being able to rationally apply real world methods consistently.
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