Wisdom on Value Investing: How to Profit on Fallen Angels Summary - Chapter 2

Erosion of purchasing power

·         The biggest financial threat facing people over the last 30 years is not market volatility or temporary loss of capital. Instead, it’s the erosion of purchasing power that comes with inflation.

·         The core ingredients for investment success are:

a.       Buying quality at a discount to intrinsic value.

b.      Know that the price you pay determines the initial rate of returns on your investment (i.e., less is more).

                                                  i.      Buying at the right price is extremely important because it enables you to make above-average returns on your investment.

                                                ii.      If you find a great business and pay a fair-to-bargain price for your shares, the rest will generally take care of itself. (To help manage risk, however, some timing tools can be applied. E.g., cycle analysis, technical analysis as outlined below.)

c.       Hold the issue for a reasonable time frame of three to five years.

d.      Keep your emotions in check during the market’s emotional mood swings (the most important).

·         Wealthy investors and billionaires share many traits and tactics, among them:

a.       Uncanny ability to spot a bargain.

b.      They recognize the inherent value in a product or invention that even the seller doesn’t see.

c.       They reduce their risk by paying very little for what they buy.

d.      They usually earned their money the old-fashioned way, by wheeling and dealing in their chosen field and outsmarting the competition.

e.       They usually haven’t invented anything – i.e., copying is better than innovating.

f.       They are usually not the innovators or manufacturers of new technology; they are the adopters of technology.

g.      They pay little attention to what everyone already knows – by training themselves to question the conventional wisdom; they gain insight into coming trends and market cycles.

h.      They have a way of overcoming the social and economic forces that work against their success.

i.        They have figured out ways to build wide moats around their operations – and often, they operate behind a cloak of secrecy.

j.        Luck is for losers – they don’t bet on luck.

 Successful investors buys bargain