This is the key to value investing, and the foundation for buy low, sell high. Find out what a company is worth and buy it only if you can pay considerably less than that. Do not buy at retail - that’s how stocks are sold. Buy as if you are buying your own business.
Don’t get frantic – there’s no need. It is not that difficult to make money over time if you are sensible and rational. People make bad decisions when they are emotional. We believe in a calm approach. Once you get the right attitude, you no longer fall prey to the hype and most investing problems disappear.
That way you are disciplined to buy only quality. We do not buy anything unless we can picture handing the shares down to my children. Forget buying stock, forget trading. Buy only companies you would own if there was no stock market. The real key to creating wealth is long term compounded results.
If it isn’t simple and easily understood, don’t buy it. Stay inside your circle of competence. If you can’t explain to someone who isn’t an investor why you bought a stock, it’s probably a bad idea.
Bad quality will give you surprises to the downside. Good quality will give you surprises to the upside, which is where the truly big winners come from.
This will help to ensure consistent returns and that you are buying fundamentally the best businesses you can.
In your heart of hearts you know when you are jumping in after some hype, trying to make a quick buck. If it sounds too good to be true…it probably is. Most people know when they are making a bad investment. They just do not listen to that voice that tells them not to.