Develop the Value Investing Mind-Set

Value investors must think long term and not think that making a quick profit is their first priority.  You must realize that you won't be investing in the same types of stocks as your friends, and you won't be able to compare quarter-to-quarter returns.

You'll also need to enjoy digging into the annual reports of the companies that interest you and be prepared to analyze everything you see.  Successful value investors are those who enjoy researching and learning everything about a company before diving in and investing.

The key tools you'll need as a value investor are:

• Patience to wait for the market to realize you found a gold mind in a beaten-down stock.
• Discipline to spend the time researching your choices and not get caught up in the mob mentality as people push stocks higher and higher above their true value.
• Desire to learn all you can about choosing the right industries to explore, picking the right stocks within those industries that are unjustifiably beaten down, and then having the courage to wait until the market realizes what a great investment it is missing.
• Ability to check your emotions at the door.  Don't get emotionally involved in your stocks.  Your value portfolio is way to make money.  Don't fall in love with it or the stocks in it.
• Expectation of adequate profits but not extraordinary performance.  Historically the average annual return for stocks in any 20-year period is about 10 to 12 percent per year.  That doesn't mean you'll earn that amount each year:  some years will be higher, some lower, but that's the average return you should expect with a long-term stock portfolio.
• Ability to calculate what a stock is worth, based on careful analysis of the business.  Don't gamble on how much the stock may go up because someone else is foolish enough to pay that.  Eventually, the fools disappear and you could be left holding the bag.
• Ability to think for yourself.  Unless you've found a friend who is also dedicated to the idea of becoming a value investor, don't count on those around you for support.  You must learn to think for yourself.

In the preface to Benjamin Graham's The Intelligent Investor, Warren Buffet writes,  "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information.  What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."