Tuesday, 10 September 2013
Why are there not more investors using the value investing approach?
The approach using value investing should be appealing, yet this strategy just doesn't take hold for some investors.
Warren Buffett put it this way: "It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately with people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is."
What Buffett means is that not everybody "gets" the concept of investing in companies at a deep discount if it means they have to wait a while, maybe even years, for the market to agree with their assessment. Many people like the daily action the market provides, and enjoy guessing the next move - even though frequent trading has been shown to deliver very poor returns.
More than anything else, the value approach demands patience and a willingness to stay disciplined without an upward move in share price to confirm your thinking. You have to be willing to wait for as long as it takes for the market to recognize the value of your dollar, even as it stubbornly remains at "40 cents."