I believe a value investor needs three main qualities to succeed in the value investing arena. They are patience, discipline and confidence.
Firstly, the investor must have patience in the market to be rewarded handsomely. Value investing is not a “get-rick-quick” scheme. It will take years to build a solid portfolio and see significant gains from it. You must be patient to slowly enter the market when you determine the time is right. You must be patient for the current price to be below its intrinsic value to buy into the business. You must be patient to hold on to the stock till the intrinsic value is reached. Remember that Rome wasn’t build in a day!
Secondly, discipline is important. In the short term, the market is and will be schizophrenic. In the long term, it becomes much more sane and will richly reward investors with discipline. Discipline and patience work hand-in-hand. Let’s take a situation as example. You bought company XYZ after analysing it and it found that fits the value investment criteria perfectly. You bought it at $25 after determining the intrinsic value to be at $34. It is undervalued by around 25%. You intend to hold the stock till it reaches its intrinsic value. Suddenly, the next day after you bought the stock, there was a negative news released. The whole world panics and stock markets are down a 3% overnight. XYZ’s price drops to below $20. At this time, would you panic and sell the stock also? You should not as the purchase is fundamentally strong. You should DCA or just wait for the markets to see the true potential of the value of the business (Do refer to my previous post pertaining to discipline in the markets).
Lastly, you must have confidence in your purchases and have confidence in your methods. If you have done all the research and are still not confident about your investment decision, then it’s not the right investment for you. When you make a decision, you must stand up for it and own up to it. You may not be right 100% of the time, but it’s better to be right most of the time and learn from your mistakes than be totally unsure.
Patience, disciple and confidence must be cultivated slowly and you must be in the markets to feel the emotions. Also, learn from your mistakes. There will surely be mistakes made from the start. Just do not make the same mistakes again and don’t be discouraged by mistakes. Mistakes are stepping stones to greater things to come. What do you think are the other qualities needed to do well in value investing?
SudhanP.com 