The Value of The Undervalued
Noise distorts signal. And in markets the majority of what can be heard is noise. Very few know how to pick up a clear signal - and win. Here's how...
Value investing is knowing the value of the undervalued.
Is something worth a lot simply because a lot of people are talking about it?
People tend to talk about topics either that others want to hear, or that they want others to hear.
Popularity drives conversation.
Consider the newspaper business.
Is it more newsworthy to mention a famous person’s infidelity, or to applaud another’s unfailing life-long commitment?
Sadly, we seem drawn to choices that lead to loss, rather than gain.
Itching ears. Deceived by what we seek after.
Whereas prudence returns wealth. And wisdom is reward itself.
In the world of markets, big trades take all the headlines.
Huge price tags and colossal transactions.
But amidst all this noise, is a solitary signal that rings true:
Here’s a snippet reel of Warren Buffet speaking at various Berkshire Hathaway annual meetings on the topic of ‘The Undervalued’…
What we learn:
A value investor’s sense of an attractive buy price is always based on future cash flow, rather than what they might sell the stock for…
“…search out businesses where I think that they are selling at the lowest possible price relative to the discounted cash that they would produce…”
You’re far more likely to find exceptionally valuable investment opportunities when you have smaller sums of money…
“…if you’re working with a small sum of money and you’re really interested in the business and willing to do the work, you will find some things that promise some large returns compared to what you will be able to deliver with large sums of money…”
Having little money is no excuse for not becoming a successful investor, you’ve just got to work harder at finding topics most others can’t see into…
“A brilliant man who can’t get money from other people and is working with a very small sum probably should work in very obscure stocks searching out unusually mispriced opportunity…but it’s a long slog.”
20,000 pages (or the equivalent) to find say 20 or so ridiculously priced deals can make several lifetimes’ of financial difference
“…when I started out I acutally went through all of the Moody’s manuals and Standard&Poor’s manuals page by page, and there’s probably 20,000 pages and there were a lot of things that popped out and none of them were in the brokerage report or anything of the sort, they were just plain overlooked…and you could find out about them but nobody was going to tell you about them…”
How determined are you to cut through the noise?
Speak soon,
Temi
p.s. Whatever you do - don’t miss out on the Delta Duck Club (2mins:12secs - if you’re looking.)
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