The Principles of Valuation: A Year-Long Series Elaborating On Sound Value Investing Principles
Introduction
Every year I take the holidays off in order to reflect on what I have accomplished for the year, but more importantly, to think deeply about and contemplate what I might do better in the upcoming New Year. This process has provided me with numerous inspirations over the years, and this particular year was no exception.
As 2017 came to an end, I found myself exceptionally frustrated (perhaps, as I am getting older my patience is wearing thinner). My frustrations were born by reading and/or listening to the articles, reports, and comments of many people lamenting short-term underperformance (a stock they just bought falls a couple points) or smugly expressing confidence about the laurels of certain stocks they own even when they are massively overvalued by the market today.
This frustrates me because from where I sit, investors that think and behave this way lack the ability to see and deal with risk or opportunity when it is evident based on fundamentals. Consequently, investors that behave this way are most likely to sell when they should buy, and buy when they should sell. Accordingly, I was inspired to try and do everything that I could by sharing all that I have learned over all the years I've been in the investing industry. My simple objective is to try and help people invest more successfully. Ergo, I decided to do a year-long series presenting fairly valued common stocks of all types, and simultaneously provide teachable real-world lessons on the sound and proven principles of value investing.
This is important to me because when my career began more than four decades ago, I pledged to do everything in my power to bring sound fundamental investing principles and practices back to the forefront of investors' minds where they belong. Long-term value investing works superbly because it is based on financial realities and factual financial data. In contrast, short-term speculation (guessing where the price of a stock might go in the short run) relegates your financial security to a mere game of chance and thus becomes more a game of luck than skill. I don't want to be lucky with my investments; I want to be smart and prudent with them.
To my young mind, this seemed achievable because it seemed clear that the principles of business, economics, and accounting were timeless, sound and proven to work in real-world situations. Therefore, the truth would prevail if investors were properly and clearly presented with the irrefutable evidence that the examination of sound fundamental investing principles provide. Not to mention that these principles of value investing are supported, promoted and practiced by virtually every renowned investor that has ever lived. Investing greats such as Warren Buffett, Philip Fisher, Peter Lynch, Marty Whitman, and so many others too numerous to mention, all embrace long-term value investing.
Note: as I will discuss further in the conclusion of this article, my series of articles for 2018 will be written to present what appear to be attractively valued research candidates that also reflect a timeless value investing principle. Therefore, my secondary objective for 2018 articles will be to provide prescreened and apparently attractively valued research candidates available for different investment objectives. I decided to do this because one of the biggest complaints I am hearing from investors today is that it's hard to find attractively valued investments in this overheated market. Keep in mind that in every market – whether it is a bull market or a bear market – there will be attractively valued stocks to be found.
