“Price is what you pay….Value is what you get”
Here is part 2 in our special 6 series on value investing.
Most folks misunderstand value investing. They think if they buy a cheap conservative stock they are value investing. Nothing is more further than the truth. Whether you are a skilled trader like Mark Fisher or Jon Najarian, or a long term investor like Warren Buffett or Bill Spetrino, value investing is about getting more value that you pay.
Ben Graham, considered the father of value investing, bought many conservative stocks. However, Graham himself went broke twice and invested back in a day before the computer when value investing screens did not exist.
It’s all about understanding value when investing. My style varies. I like safe high yield investments and I also like various financial stocks which pay no dividends, but have the potential to double in less than 3 years time. I have practiced value investing in buying sports cards, autographs, buying concert tickets and sports tickets as well stocks and options. The true value investor understands and is able to explain why an investment works and concentrates on his downside more than his upside.
My idea of value investing is looking at the worst case scenario and seeing if I can live with it. The big difference between value investing and merely speculating is simple. The value investor is focused on his entrance and exit prices and ALWAYS understands his downside risk. The speculator is only focused on the upside and never considers the downside. Value investing is simply getting more for your money than you put up. Like Warren Buffett says “Price is what you pay, value is what you get”
Tomorrow tune in for part 3 of value investing.