Value Investor Daily #47

In partnership with

2 Cards Charging 0% Interest Until 2026

Paying down your credit card balance can be tough with the majority of your payment going to interest. Avoid interest charges for up to 18 months with these cards.

Learn More

Imagine you're walking into a dimly lit bar where the greatest investors of our time are gathered around a table. There's Warren Buffett nursing a Cherry Coke, Charlie Munger adjusting his glasses, and Peter Lynch animatedly telling a story.

They've all come to share their hard-earned wisdom, the kind that isn't found in textbooks but in the trenches of the financial markets. Let's pull up a chair and listen in.

1. "Price is what you pay. Value is what you get." — Warren Buffett

Think of buying a car. The sticker price is one thing, but the real value lies in how reliable it is, how long it'll last, and the experiences you'll have driving it. Buffett's point is simple: don't confuse the cost of something with its true worth.

Take Apple during the 2008 financial crisis. Its price plummeted 60%, but its fundamentals and brand remained strong. Those who saw the value beyond the price were handsomely rewarded, and the stock price has risen 80x since then.

Caveat: Determining value isn't always straightforward. It's like assessing a used car—you must look under the hood to ensure it’s not a lemon. And usually the price is right.

2. "Investing is most intelligent when it is most businesslike." — Benjamin Graham

Investing isn't a casino game; it's owning a piece of a business. Graham suggests approaching it with the same scrutiny you'd use if you were buying the whole company.

Imagine evaluating a local coffee shop before buying it. You'd check its finances, risks, products, processes, team, premises, leadership, customer loyalty, and competition. Apply that same diligence to stocks.

Caveat: Even thorough analysis can't predict everything—as a shareholder and not an insider, you’ll never have 100% perfect information, so size the risk accordingly.

3. "The big money is not in the buying and selling, but in the waiting." — Charlie Munger

Patience isn't just a virtue; it's the entire game. Munger believed that letting your investments grow over time (even when the valuation gets lofty sometimes) beats trying to time the market.

Consider those who held onto their Amazon shares since the early days. Despite huge runs and 80% drawdowns, their patience has made them wealthy.

Caveat: Waiting only works if you're invested in quality. Holding a failing company longer won't turn it around.

4. "Know what you own, and know why you own it." — Peter Lynch

If you can't explain to a friend what a company does and why it's a good investment, maybe you shouldn't own it.

Remember when people bought tech stocks in the '90s without understanding them? They all got burned when the bubble burst.

5. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1." — Warren Buffett

Sounds obvious, right? But Buffett emphasizes that protecting your capital is more important than chasing high returns.

Think of it like a game of golf where avoiding bad shots is more critical than making spectacular ones.

Caveat: No investment is without risk. Sometimes, avoiding all losses means missing out on gains on runaway momentum trades.

6. "The stock market is a device for transferring money from the impatient to the patient." — Warren Buffett

Those who jump ship at the first sign of trouble often hand over profits to those who stay the course.

During market dips, savvy investors see buying opportunities while others panic-sell.

Caveat: Patience isn't a free pass. Ensure the fundamentals still make sense.

7. "In the short run, the market is a voting machine but in the long run, it is a weighing machine." — Benjamin Graham

Popularity can sway prices temporarily, but true value determines price over time.

A trendy startup might skyrocket today but falter tomorrow without a business model.

8. "Margin of safety." — Benjamin Graham

This is your financial cushion, buying assets for less than they're worth to protect against errors.

If you believe a stock is worth $100 and you buy it at $70, you've got a $30 buffer against unexpected bad news.

Caveat: A margin of safety isn't foolproof if the company's situation worsens dramatically.

9. "Be fearful when others are greedy and greedy when others are fearful." — Warren Buffett

It's contrarian but effective. Market hysteria creates mispriced assets.

During the 2008 crisis, fear drove prices down. Those who bought then reaped long-term rewards as markets recovered.

Caveat: Not all beaten-down sectors are bargains. Do your homework.

10. "Invest only within your circle of competence." — Warren Buffett

Stick to what you know. If you're an expert in cars, why gamble on biotech?

Buffett famously avoids tech stocks because he doesn't feel he understands them well enough. That’s changed recently with Apple, but while he understands the consumer’s attachment to their iPhones, he’s not placing bets on who will dominate AI or the metaverse.

Caveat: Focusing too narrowly can mean missed opportunities. Diversify within your expertise.

11. "The four most dangerous words in investing are: 'this time it's different.'" — Sir John Templeton

Believing that the old rules don't apply anymore can lead you off a cliff.

During the dot-com bubble, many thought profits didn't matter anymore. Reality proved otherwise.

Caveat: Occasionally, things do change. Just ensure you're not ignoring the fundamental truths of business—customers, revenue, and profits.

12. “Avoid debt.” — Phil Town

Debt can be a silent killer for companies. It’s like carrying a heavy backpack while climbing a mountain; manageable on a sunny day but perilous if a storm hits.

Consider the downfall of Toys “R” Us. Once a retail giant, it collapsed under the weight of $5 billion in debt, unable to invest in e-commerce to compete with Amazon. In contrast, companies like Facebook, with minimal debt and ample cash reserves, have the agility to innovate and thrive.

Caveat: Some industries, like utilities or real estate, often use debt effectively to fuel growth. The key is whether the debt is manageable and strategically used.

13. “Volatility is not the same as risk.” — Seth Klarman

Picture a boat bobbing on choppy seas. The up-and-down motion is uncomfortable, but it doesn’t mean the boat will sink.

Tesla’s stock price has been notoriously volatile, swinging wildly with Elon Musk’s tweets and market sentiments. Yet, long-term investors who weathered the turbulence have seen substantial gains as the company has revolutionized the automotive industry.

Caveat: Sometimes, volatility can signal underlying issues. It’s essential to differentiate between temporary fluctuations and fundamental problems.

14. “The market is a pendulum that swings between unsustainable optimism and unjustified pessimism.” — Benjamin Graham

The stock market often behaves like a mood ring, reflecting the emotional state of investors.

After the 2008 financial crisis, bank stocks were pummeled. Citigroup’s shares dropped below $1, driven by fear. Those who recognized the overreaction and invested saw significant returns as the bank recovered over the following years.

Caveat: Timing the market’s emotional swings is challenging. Focus on fundamentals, not on the pendulum.

15. “The secret to investing is to figure out the value of something—and then pay a lot less.” — Joel Greenblatt

It’s akin to buying a designer jacket at a clearance sale.

After the real estate market crashed, Buffett’s acquired assets like Burlington Northern Santa Fe Railroad at prices below intrinsic value, anticipating long-term gains.

Caveat: Valuing assets accurately is complex. Misjudgments can lead to overpaying for an undervalued asset.

16. “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” — Warren Buffett

Discipline trumps brilliance in investing.

Take the case of Long-Term Capital Management, a hedge fund run by Nobel laureates. Despite their intellect, they took excessive risks and collapsed in 1998. Meanwhile, more modest investors who stuck to fundamental principles avoided such pitfalls.

Caveat: Basic financial literacy is still necessary. Ignorance isn’t bliss in the investment world.

17. “Risk comes from not knowing what you are doing.” — Warren Buffett

The antidote to risk is knowledge. Do the research before investing. Learn when to hold and when to exit.

During the dot-com bubble, many poured money into tech companies without understanding their business models. Companies like Pets.com went bust, wiping out uninformed investors.

Caveat: Even well-researched investments carry risks due to unforeseen events like regulatory changes or technological disruptions.

18. “Time is the friend of the wonderful company, the enemy of the mediocre.” — Warren Buffett

A great business grows stronger over time, like a fine wine aging.

Investors who bought shares of Starbucks in the early 2000s and held on have enjoyed substantial growth as the company expanded globally. Conversely, companies like Sears failed to innovate and declined steadily.

Caveat: Even strong companies must adapt to changing markets. Complacency can erode advantages.

19. "Markets are driven by fear and greed." — Warren Buffett

Emotions often overshadow facts in the market.

Take the rollercoaster ride of GameStop's stock in early 2021. A surge of enthusiasm on social media platforms led retail investors to buy en masse, driving the stock price from around $20 to nearly $350 in a matter of weeks. Greed enticed more investors to jump in, hoping to ride the wave. However, when reality set in and fear took over, the stock price plummeted just as rapidly. Many who bought at the peak suffered substantial losses.

Caveat: Emotional markets can remain irrational longer than expected. Avoid leverage or a position big enough to keep you up at night when buying into fear.

20. “Investing should be more like watching paint dry or watching grass grow.” — Paul Samuelson

If you’re looking for excitement, investing isn’t the place.

Index fund investors can quietly build wealth over time without the adrenaline rush of day trading.

Caveat: Passive investing doesn’t mean neglecting your portfolio. Regular reviews are still important to ensure alignment with your goals.

21. “You get recessions, you have stock market declines.” — Peter Lynch

Market downturns are as natural as the tides.

During the COVID-19 pandemic in 2020, markets plunged rapidly. Investors who stayed the course or bought more saw their portfolios recover and grow as markets rebounded.

Caveat: Not all companies recover equally. It is crucial to invest in businesses with solid fundamentals that can withstand economic shocks.

22. “The intelligent investor is a realist who sells to optimists and buys from pessimists.” — Benjamin Graham

Capitalize on market emotions by being the voice of reason. But be a realist. Sell when the market or your stock is overheated. Buy when there’s blood in the streets.

When oil prices collapsed in 2016, energy stocks were beaten down. Investors who recognized the long-term value in companies like ExxonMobil benefited when prices stabilized.

Caveat: Ensure that pessimism isn’t due to irreversible industry declines, like those faced by coal companies due to shifts toward renewable energy.

23. Buy when there's blood in the streets, even if the blood is your own.” — Baron Rothschild

When systemic turmoil sets in, don’t panic. Crack open the quarterly reports and figure out which businesses will survive.

Finding a balance sheet you like could be a once-in-a-lifetime opportunity to pick up shares at a bargain. We’ve had more than one opportunity in the last 25 years—the dot com bubble, the great recession, and the pandemic.

Caveat: Some companies will absolutely fail in every crisis. Don’t buy blindly unless it’s an index fund.

24. “An investment in knowledge pays the best interest.” — Benjamin Franklin

The more you learn, the more you earn.

Buffett reads 500 pages a day, but even combing through just five pages a day of company docuemnts will put you ahead of most investors. Virtually no one actually reads annual reports, quarterly updates, earnings transcripts, competitors reports, etc.

Caveat: Continuous learning is essential. Industries evolve rapidly, and outdated knowledge can lead to poor decisions.

25. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” — Warren Buffett

A cheap company might rebound in price and deliver a strong return, but a wonderful company will grow your wealth for decades.

Buying shares of Apple when it wasn’t the cheapest tech stock has proven fruitful due to its strong brand and ecosystem. Investing in a mediocre company at a bargain price may offer short-term gains but lacks long-term growth potential.

Caveat: Even wonderful companies can be overvalued. Assess whether the price justifies the potential returns.

26. “The biggest investing errors come from psychological factors.” — Howard Marks

Your mind can trick you. Learn all the mental models to understand human triggers, especially your own. Greed. Fear. Panic. Euphoria. Confirmation bias. Sunk cost fallacy.

During market bubbles, fear of missing out (FOMO) can drive irrational investment decisions, as seen during the housing bubble of the mid-2000s and meme stock bubble of 2021.

Caveat: Self-awareness is crucial but not sufficient. Implement checks and balances to mitigate emotional biases. Get an investing buddy to bounce ideas off of and stay grounded.

27. “The single greatest edge an investor can have is a long-term orientation.” — Seth Klarman

Think marathon, not sprint.

For decades, investors who have held onto Johnson & Johnson stock have benefited from consistent dividends and growth.

Caveat: A long-term focus doesn’t mean ignoring negative developments. Stay informed about your investments.

28. “Don’t try to buy at the bottom and sell at the top.” — Bernard Baruch

Perfection is the enemy of good.

Instead of waiting for the absolute lowest price during the 2009 market bottom, investors who bought steadily as prices fell and rose still made substantial gains.

Caveat: While timing isn’t everything, being completely indifferent to market conditions can impact returns.

29. “We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” — Warren Buffett

Consistency beats brilliance.

Dollar-cost averaging into index funds or value-averaging into quality stocks, regardless of market conditions, will do more for you in the long term than being a genius stock picker or trader.

Caveat: Discipline must be applied to a sound investment strategy. Blind consistency isn’t beneficial.

30. “The investor’s chief problem is likely to be himself.” — Benjamin Graham

Self-sabotage is real. Write out a simple investing game plan and stick to it.

An investor might hold onto a losing stock due to overconfidence or emotional attachment, ignoring signs that it’s time to sell. If the company starts losing money, selling now and revisiting the idea later is okay.

Caveat: Seeking objective advice can help mitigate personal biases that cloud judgment.

31. “If you don’t find a way to make money while you sleep, you will work until you die.” — Warren Buffett

Let your money work for you.

Investing is risky, but so is holding cash forever. People search Google 24/7, and you can own a tiny piece of that business.

32. “The most important quality for an investor is temperament, not intellect.” — Warren Buffett

Keep your cool, especially when markets go haywire. Never risk enough that it keeps you up at night.

Caveat: Temperament doesn’t replace the need for due diligence.

33. “All intelligent investing is value investing.” — Charlie Munger

The goal is always to get more back in return than what you paid for it. To do that, you can’t overpay.

Whether investing in stocks, bonds, private equity, startups, or real estate, seeking assets priced below their true value is the essence of intelligent investing. The same principles apply no matter the asset class.

34. “The stock doesn’t know you own it.” — Warren Buffett

The market isn’t personal.

If you need your investments to grow quickly to achieve a personal goal, the market won’t adjust just to accommodate you. It operates independently of individual needs. It doesn’t care what you paid for it. It’s not going back to your buy price; it’s just moving with market forces.

Caveat: Align your investment strategy with your financial timelines to avoid forced selling.

35. “Investing is simple, but not easy.” — Warren Buffett

The principles are straightforward; execution is challenging.

Everyone knows buying low and selling high is profitable, but fear and greed often lead you to do the opposite.

36. “The ability to say ‘no’ is a tremendous advantage for an investor.” — Warren Buffett

Investing is a beautiful game, with no called strikes. You can wait for the fat pitch.

Cash is a valid position while you wait for an undervalued opportunity.

37. “Forecasts tell you a lot about the forecaster; they tell you nothing about the future.” — Warren Buffett

No one can predict the future. If they say they can, they’re either manipulating you or delusional.

Despite numerous predictions of market crashes, the S&P 500 has continued to reach new highs over the years. Relying solely on forecasts could have led to missed gains.

Caveat: While forecasts shouldn’t dictate your strategy, they can provide insights when based on sound analysis.

38. “Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns.” — Charlie Munger

The stock reflects the business.

Companies like Amazon have seen their stock prices soar in line with exponential growth in revenues and profits in the underlying business. The business’s success drives investor returns.

Final Thoughts

Review these rules often. Print them out. Internalize them.

Make your own new rules every time you make an investing mistake. Add them to your list.

Value investing is as much about understanding businesses as it is about understanding yourself. The market will test your patience, discipline, and convictions.

Remember, investing isn’t just about making money; it’s about building wealth thoughtfully and sustainably. So, take a page from the masters, stay curious, stay patient, and let time be your ally on this journey.

Next time the market takes a wild swing, remember the voices around that dimly lit bar. They’re not just sharing tips; they’re handing you a roadmap to wealth and wisdom.

Thank you for reading!

2 Cards Charging 0% Interest Until 2026

Paying down your credit card balance can be tough with the majority of your payment going to interest. Avoid interest charges for up to 18 months with these cards.

Learn More