"Recently there have been people getting on in the world as strategists, but they are usually just sword−fencers. The attendants of the Kashima Kantori shrines of the province Hitachi received instruction from the gods, and made schools based on this teaching, travelling from country to country instructing men. This is the recent meaning of strategy." (Miyamoto)The most known classics on war strategies are Sun Tzu’s “The Art of War” and Clausewitz's “On War”.
Lesser known is Samurai Miyamoto Musashi (1584-1645). He was an expert Japanese swordsman during a time in Japan, which was characterized by great upheaval. He came to fame by his two-sword style of fighting, which made him victorious in many battles (including 60 duels).
His book of Five Rings, a book about strategy, tactics and the philosophy of sword- fencing, like all the other classics, has one common message. It stresses the importance of knowing oneself, ones strength and weakness, and focusing the attacks on the enemy’s weak-spots.
"You should not have a favorite weapon. To become over−familiar with one weapon is as much a fault as not knowing it sufficiently well. You should not copy others, but use weapons which you can handle properly. It is bad for commanders and troopers to have likes and dislikes. These are things you must learn thoroughly." (Miyamoto)It appears that nowadays everyone wants to invest like Warren Buffett. The favorite weapon of most "value investors" appear to be investing in companies with growth prospects, a great moat, is a compounding machine and has an extraordinary management. The price paid for such an investment is only of secondary importance. The quantitive approach of Graham and Dodd investing, with his emphasize on investing in companies that are statistically cheap and offer a wide margin of safety, has greatly lost its luster with those investors.
In many cases the majority of so called "value investors" following the Buffett approach are not even acquainted with the Graham and Dodd approach to stock market investing. The attitude of those "value investors" strikes me as ignorant. Because emulating Warren Buffett without studying thoroughly Benjamin Graham is like trying to be the next Michel Angelo, but without having any concept about the theory of colors and proportions.
But more importantly, in a great many of cases reasonable valuations for stocks they are promoting do not exist anymore.The notion constantly uttered by the Buffett disciples that it takes more than just the numbers in order to identify a great company is justified as far as it goes. Unfortunately, these arguments nowadays are more often than not taken too far. Their focus on the qualitative aspects of a company often leads them to dismiss the cheery prices they have to pay for outstanding companies. Furthermore, does the majority of those "value investors" seem oblivious to the fact that very few assets, or markets, are so bad that they cannot become severely underpriced, safe and not to mention potentially lucrative.
On the other end of the spectrum you have die hard Graham and Dodd disciples. They are not interested in any stocks that do not trade below their net current asset value (NCAV). What to say to those guys? They should rather hold it with Peter Cundill, who once told an anecdote about a guy he invested money with. This guy was a strict Graham and Dodd net-net investor and Peter noted that: „ (...) he is going nowhere, because he is too rigid (...)."
"More than anything to start with you must set your heart on strategy and earnestly stick to the way. (...) Strategy is different from other things in that if you mistake the Way even a little you will become bewildered and fall into bad ways. (...) The essence of the Way is this. To understand attitude you must thoroughly understand the middle attitude. The middle attitude is the heart of attitudes. If we look at strategy on a broad scale, the middle attitude is the seat of the commander (...)" (Miyamoto)Do not get me wrong here. I am not arguing for or against any of the abovementioned approaches to value investing. Both have their merits and draw backs. I only want to point the reader's attention to a very important fact when it comes to stock market investing. Mainly, the need to find your own value investing strategy. And, more importantly, the vice of being dogmatic. You have to think independently and correctly. Each potential investment has to be examined thoroughly, but not on the ground of what they are called by fellow investors, but rather on what they truly are.
When engaging in value investing listen to the wisdom of Miyamoto. Do not have a favorite value investing strategy. Becoming over familiar with one value investing strategy makes you ignorant and inflexible, which is detrimental to your long- term performance.
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