I recently went abroad on holiday for 12 days. It gave me the rare opportunity to read a number of books. Not surprisingly I took three investment books with me. I was not disappointed with my reading. In fact, quite the opposite. I found all three books immensely satisfying to read.
These are three books I read;
The Education of a Value Investor by Guy Spier
The Little Book That Still Beats The Market by Joel Greenblatt
The Dhando Investor by Mohnish Pabrai
What each of the books taught me was that there is no finer investment strategy than value investing. All three writers are successful investors and fund managers. They do their own research, they buy shares in undervalued companies which do not manipulate their earnings, and which have a sustainable competitive advantage. They then hold those shares for years. They do very little trading.
They do not follow trends and they do not gamble with investors’ money. Their approach is very patient. They know that even when they buy shares at bargain basement prices those shares can still fall substantially in value after the purchase but eventually they will rise significantly above the price they paid for them. They do not panic sell because they know they have bought the shares at a large undervaluation in the first place.
They are prepared to invest a relatively large portion of their funds into one share if its prospects are excellent and there is little, if any, downside. Mohnish Pabrai explains the Kelly Formula in which you literally calculate the probability of success of your investment and invest a high percentage of your fund into that company. This is counter-intuitive to most investors because we are all taught not to put all of our eggs in one basket. Well, as Warren Buffett, the world’s most successful investor, once said “Keep all your eggs in one basket but watch that basket closely.” He should know of course. Currently his company Berkshire Hathaway has 24% of its fund invested in Apple. His company also has $120 billion in cash right now. This probably reflects his view that there aren’t that many shares worth buying currently.
Guy Spier is a great fan of both Buffet and Pabrai. He runs his own fund largely based on their value based approach.
Fortunately, we already have a value-based investment strategy. We know we have invested in some amazing companies which have very high growth prospects over the next few years. Equally we are aware that value-based investing means that your fund can lag the market typically for up to three years. However, undervalued shares do eventually become recognised by the market. That’s when their price soars. So, we intend to sit patiently on our undervalued shares knowing that their true valuations will eventually show through. That is when our value-based approach will truly reap dividends.
So if you would like to benefit from investing in a fund with a value based strategy why not get in touch? Contact us to find out how to invest in the CCM Intelligent Wealth Fund today. You know it makes sense.
