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Value investing

Value investing


By Trevor Keidan
Ignoring 'market noise'

Ignore the noise coming from Wall Street - and the other stock exchanges - if you want to achieve success with your financial planning.

Some of the world's best-known investors pay (and have paid in the past) little attention to the pundits and analysts on Wall Street. Instead, they have chosen to go it alone, placing their trust in themselves, their choices and their own analysis.

The world's best-known investor, Warren Buffett, is famous for his "value" approach to investing.

He is quoted as saying, "It's not risky to buy securities at a fraction of what they're worth."

If you were to summarise Buffett's approach to investing, it would be that he buys good companies at cheap prices.

The man who is widely considered to be Buffett's mentor is Benjamin Graham - author of the books The Intelligent Investor and Security Analysis.

His approach to investing is stated as follows: "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

Graham drew a very real distinction between investors and speculators. He considered much of what was happening on Wall Street to be speculative.

Graham believed that by buying stocks, real investors are buying a piece of a company - not just names on an exchange. It's another point well worth remembering today.

Also worth remembering is that the stocks and indexes around the world are driven up or down by a number of factors. Such factors include market sentiment (optimism and pessimism) as well as buying and selling that is brought about by those performing technical analysis.

With market sentiment and technical analysis driving the markets and the price of company stock, it is easy to forget that the names of the companies on the exchanges are actually real going concerns that are actually doing business in the real world every day.  

Real investors such as Buffett and Graham remember this and so should we, especially in today's volatile markets where fear and greed seem to be getting the better of many.

In his book The Intelligent Investor, Graham put investors - such as ourselves - into two distinct categories. He labels investors as either defensive or enterprising investors.

According to Graham, a defensive investor is one whose investments are set up in such a way as to try to avoid serious losses while requiring the least effort.

An enterprising investor, on the other hand, is prepared to devote effort and time to picking and monitoring investments.

Most of us would probably be considered by Graham to be defensive investors.

As defensive investors, today we have a lot of choice.

There are myriad funds out there that are suitable for those of us who do not have the time or inclination to put in the effort required to choose a portfolio. These range from specialist funds to those tracking almost every index.

However, it is advised that the defensive investor who feels ill equipped to make investment choices seek professional advice at the start of the process - and then perhaps once a year - before any changes are made to the overall portfolio.

Having said this, it almost goes without saying that investors should choose their advisers wisely to make sure that the advice matches the investor's objectives and attitudes to risk.

In addition, one way to avoid the noise from Wall Street (and the other exchanges) is to implement the practice of dollar-cost averaging - which, as we know, is the practice of paying a uniform monthly amount into an investment plan.

In doing so, the investor is able to stay invested in the market while guarding against periods of financial uncertainty. In addition, by setting up regular monthly payments, investors are reasonably assured of a low-maintenance investment plan. Such a plan - as past experience dictates - should reasonably be expected to reap positive results over the long term.

So if you want to stay focused - and invested for the future - know why you're investing and block out the noise.

Your Money Matters!

Trevor Keidan is managing director of Infinity Financial

Solutions, a firm providing impartial, tailor-made personal

financial advice to clients in Cambodia

and Southeast Asia. Should you wish to contact Trevor,

please send an email to [email protected]


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