1. While a "bargain" is vital for picking stocks in any value investing, we ignore the difficulty in "identifying" it on our own as a retail investor.
2. If a stock is trading at a considerable discount to its 52-week high, the price differential alone does not mean the stock is a bargain buy, as there might be something really wrong with the company, which is why its shares are being battered.
3. Even if the "bargain" means a low P/BV or P/E ratio, or a high dividend yield, or all combined, they may not truly determine whether it has been bought on the principle of obtaining value for your investments.
4. They could be due to lower growth prospects, poor quality of management or other such reasons which a retail investor would not be able to perceive.
5. The initial advantage of a “bargain” price will be quickly eroded by the low returns that the business will earn if it remains a lousy one for a long time, even if you had bought it cheap.
6. On the other hand, if you invest in a wonderful business for a long time, even if you pay a little bit more while buying it, you will get a wonderful result if you stay in it for a longer time.
7. It is, therefore, better to invest in wonderful businesses – even if you pay a little more for it - rather than buying a company only for its cheap valuations.
8. The same logic also holds good for well-diversified mutual funds, which focus on value investing, with a consistent rating over the long term.
9. For a long-term investor, the job and effort of identifying "wonderful businesses", and the "real gap" between price and value of their stocks, is best left in the hands of an experienced fund manager, whom we can never replicate.
10. General Dwight D. Eisenhower, and former US President, once said, "There is no victory at bargain basement prices."
2. If a stock is trading at a considerable discount to its 52-week high, the price differential alone does not mean the stock is a bargain buy, as there might be something really wrong with the company, which is why its shares are being battered.
3. Even if the "bargain" means a low P/BV or P/E ratio, or a high dividend yield, or all combined, they may not truly determine whether it has been bought on the principle of obtaining value for your investments.
4. They could be due to lower growth prospects, poor quality of management or other such reasons which a retail investor would not be able to perceive.
5. The initial advantage of a “bargain” price will be quickly eroded by the low returns that the business will earn if it remains a lousy one for a long time, even if you had bought it cheap.
6. On the other hand, if you invest in a wonderful business for a long time, even if you pay a little bit more while buying it, you will get a wonderful result if you stay in it for a longer time.
7. It is, therefore, better to invest in wonderful businesses – even if you pay a little more for it - rather than buying a company only for its cheap valuations.
8. The same logic also holds good for well-diversified mutual funds, which focus on value investing, with a consistent rating over the long term.
9. For a long-term investor, the job and effort of identifying "wonderful businesses", and the "real gap" between price and value of their stocks, is best left in the hands of an experienced fund manager, whom we can never replicate.
10. General Dwight D. Eisenhower, and former US President, once said, "There is no victory at bargain basement prices."