“Have not the investors and security analysts eaten of the tree of knowledge of good and evil prospects? And by so doing, have they not permanently expelled themselves from that Eden where reasonable companies, cheaply priced, could be plucked off the bushes?" (Author Unknown)”
Nowadays, the majority of self- proclaimed "value investors" explicitly recommend picking stocks by picking great companies. They are not disciples of Benjamin Graham, whose concept to stock market investing they regard as outdated in a post-industrial era. But rather of Philip Fisher, who advocated a system to stock market investing called "scuttlebutt". The "scuttlebutt" approach involves talking to company managers, employees, customers, suppliers, and knowledgeable people in the industry to identify able managers of companies with extraordinary profitability and growth prospects.
Or they are followers of Peter Lynch’s approach. Lynch, for
example, used to purchase a company's stock based on the CEO’s impressive grasp
of retailing facts and figures. This is Peter' s so called Principle Nr.14,
which says if you liked the store, chances are you would love the stock.
In short, most "value investors" nowadays are
obsessed with finding the next great moat company that will turn out to be a
multi bagger. The price being paid for such a company is, at best, only of
secondary importance.
Especially the “scuttlebutt” approach is extremely time
consuming. Time, I argue, that would be better spent by firstly, studying the
simple rules and the framework to investing outlined by Graham and Dodd. Then,
to look inside oneself, trying to figure out what kind of investor one really is.
Knowing the basic rules to stock market investing, and more
importantly knowing oneself, is not only a precondition for long- term success
in value investing. It is also an eminent mark of wisdom.
"Value Investing" is a big tent, often squatted by value
pretenders. Investors that keep a thrifty table and lavish out upon their
building. The ones that are stingy at home but dissipative abroad. Such
diversity of character is vicious because the effect is a dissatisfied and
uneasy mind. One that is assaulted by terrible monsters one day and tempted by
sirens the other when dealing with Mr. Market.
The wise "Value Investor", on the other hand, lives by rules,
is self-aware, knows what he is looking for and acts according to that
knowledge when dealing with Mr. Market. Investors who live and act according to
that knowledge will walk through their investments instead of being carried by
them like a straw in the river.
Reference:
Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984
