Really a delight to read this. Over time, I have come to the same conclusion and I guess this is the ideal way !!!

 

 

Originally posted by basant Charlie Munger’s Modified Value Investing Strategy Charlie insisted one of the biggest mistakes investors make is they underestimate how difficult it is to earn a good return on capital over decades. The nature of capitalism is that when a company enjoys high returns on capital employed, competition will inevitably follow as other investors and business owners try to get in on the action. Eventually, equilibrium is reached and a field will earn mediocre, or sub-standard, returns on money. That’s why Charlie was focused on finding excellent businesses with durable competitive advantages that made it difficult for competitors to hurt the bottom line. This culminated in his modified value investing approach, which was insightful and wise. He concluded that value investing is a better way to manage money but if one is forced to spend his entire life staring at ticker tape instead of reading, spending time with family, or pursuing the things you love, the sacrifice isn’t worth it, no matter how rich it makes you. By focusing on fairly priced excellent businesses, you can live your life as your money compounds through growth in the underlying company. This drastically cuts down on the number of buy and sell decisions you have to make. Simply put together a collection of great companies, chosen over time at attractive prices present themselves in the market, and hold on for decades.

Though a problem comes in this approach also. Say you have bought a great business at cheap/ reasonable price and made good money but right now markets are valuing the same at high valuations - factoring even growth for the next 1-2 years. If you are value oriented, you will have a problem in majorly revaluing the business (say 5 times P/B than normal 3 times P/B or 35 P/E than normal 25 P/E). Then either you should be willing to suffer mediocre returns (in fundamental terms) and hold onto stock, OR sell the same and wait to reenter at better valuations/ look for other opportunities.

 

This is especially true when you are still in the process of creating initial capital / and are markets are not in major bull run like 2003-07.        

 

 

Originally posted by vishmitt   Really a delight to read this. Over time, I have come to the same conclusion and I guess this is the ideal way !!!    Originally posted by basant Charlie Munger’s Modified Value Investing Strategy Charlie insisted one of the biggest mistakes investors make is they underestimate how difficult it is to earn a good return on capital over decades. The nature of capitalism is that when a company enjoys high returns on capital employed, competition will inevitably follow as other investors and business owners try to get in on the action. Eventually, equilibrium is reached and a field will earn mediocre, or sub-standard, returns on money. That’s why Charlie was focused on finding excellent businesses with durable competitive advantages that made it difficult for competitors to hurt the bottom line. This culminated in his modified value investing approach, which was insightful and wise. He concluded that value investing is a better way to manage money but if one is forced to spend his entire life staring at ticker tape instead of reading, spending time with family, or pursuing the things you love, the sacrifice isn’t worth it, no matter how rich it makes you. By focusing on fairly priced excellent businesses, you can live your life as your money compounds through growth in the underlying company. This drastically cuts down on the number of buy and sell decisions you have to make. Simply put together a collection of great companies, chosen over time at attractive prices present themselves in the market, and hold on for decades.