With the recent conclusion of Value Invest Fest 2015 hosted by Cayden Chang, the founder of Mind Kinesis Value Investing Academy, alongside with many world renowned speakers including Mary Buffett and David Kuo of The Motley Fool, I picked up many lessons and wish to pass on their invaluable lessons taught to you! Many topics were touched on during the conference, including funds, portfolio management, investment principles, and even financial planning. It was a very comprehensive package in my opinion and I can’t wait to share! So let’s get started!
On Mary Buffett’s part, she taught mostly on how to select a company to invest in. As a protege to Warren Buffett, it’s not surprising that she emphasises on what Warren Buffett teaches in his books. Some of the key pointers were these:
- Management – Understand the management and how the organisation provides value to its investors. Are the corporate actions taken to value-add to its investors or are they spending at the expense of investors’ money?
- Think long-term! – Always begin your investment from a business perspective. An investment is most successful when it is most business-like. When she mentioned long-term, she also meant to buy into a company that you would never want to sell.
- Circle of Competence – Once again, like what Warren Buffett always say, invest based on your circle of competence. Why spend so much effort on an industry or company you don’t understand at all? There are thousands of companies listed around the world and there will be bound to be a company that you can understand! So don’t force yourself to understand a business that you can’t.
- Margin of Safety – Always purchase companies at a price with a margin of safety. Stock Price < Intrinsic Value. Note that there are many different angles to look at when considering margin of safety. Examples such as P/E and PEG are the commonly used ratios to determine margin of safety. Depending on how in-depth you want your margin of safety to be, decide on the number of variables to factor in.
Warren Buffet’s Value Investment Methodology
Mary then goes on to discuss more in-depth what to look out for in a company:
- Buy into companies that have a durable competitive advantage. This means to buy into companies that have the ability to raise prices and people would still buy them with little competition. They tend to be items of necessity or even strong brand names. The idea is to find companies that own a piece of the consumers’ minds. Examples would be Gilette for shavers, Kleenex for tissues, Panadol for paracetamol. Get the drift? The first brand name that comes to your mind when you want to buy an item.
- Buy into companies that have predictable and consistent earnings. She continues by mentioning that compound growth is the key to long-term success, CAGR.
- Buy at a good price. This is from the wise adage of Benjamin Graham, “The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be”
And of course, how could she miss out on the 2 Rules of Warren Buffett?
Rule #1: Never lose money.
Rule #2: Never forget Rule #1.
At closing, she reminded us that Value Investing requires a lot of patience and discipline. Would you be patient enough to wait for the stock price to come to a discount? Would you have enough discipline to stick to your investment methodology? “It’s easier to stay out of trouble than to get out of trouble”. Don’t be too eager to jump into a trade or investment! She ends her speech by reinforcing the importance of educating ourselves. The more you learn, the more likely you will earn! Remember, a lack of knowledge is risk itself! Since we can’t control inflation risk or corporate risk, work on something we can. Ourselves! Stay tune for more lessons on the other speakers like David Kuo of The Motley Fools!