3 Ways to Utilise A Winning Investing Strategy

Perhaps one of the most overly-used phrases in investing is “value investing”.  Although many great investors can be considered to be value investors, their style might differ greatly from one another.

For instance, Philip Fisher – one half of billionaire investor Warren Buffett’s two famous mentors – focused on buying great companies run by great people and placed less emphasis on the price he would be paying for a company’s shares. Benjamin Graham, Buffett’s other mentor, on the other hand, focused more on the cheapness of a company’s shares in relation to its assets.

But despite the seeming differences between the approaches used by different investors, there are still some things that all value investors will agree on.

Buy Businesses

Value investors concentrate on the business that they are buying rather than its price alone. In other words, they are looking for businesses, not stock symbols.

If a value investor looks at Singtel (SGX: Z74) for instance, he or she will focus more on the fundamentals of the telecommunications industry in the region, especially in Singapore and Australia, two of the company’s largest geographical markets.

Information like the current volume of Singtel shares that are traded or the price patterns of its shares over the past few days, on the other hand, would be given short shrift by the value investor.

Find Honest Management

One important aspect of being a value investor is to find a company with honest management. This is because even the best business in the world will give you little chance of ever seeing returns if crooks are the ones running the show; investors learned that the hard way when fraudulent practices in American companies like Enron and Worldcom were uncovered.

The quality of a company’s management team needs to be examined closely and never be taken granted of. Even if a company is part of a widely-followed stock market benchmark like the Straits Time Index (SGX: ^STI), it does not guarantee the integrity of the company’s management team as a market index is often not formed based on such information.

For instance, the Straits Times Index’s constituents are selected based on their market capitalization, free float, and liquidity with no mention being made on factors like the quality of a company’s management team.

Ignore the Market

Finally, the last common trait among value investors we have here is that they tend to ignore the market once they’ve found a company to invest in.

Typically, they will be vested for the long term and a decision to sell an investment would not be made solely on subsequent price actions alone.

Therefore, patience in the face of shorter-term price declines might be the greatest attribute a value investor must possess. In fact, the current decline in the market – the Straits Times Index has dropped 5.3% to 3,000 points from where it was at the end of 2013 – might be considered a test for all of us to see if we have what it takes to be considered a true value investor.

Foolish Bottom Line

Although no one has the perfect strategy for investing in the stock market, some of the greatest and most successful investors consider themselves to be “value investors”. These includes billionaire investors like Bill Ackman, Sir John Templeton, Seth Klarman, and of course Warren Buffett. Perhaps, there’s also a lesson in that for us.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.