Despite soaring to record heights in 2017, many people regard the stock market to be more of a casino than a reliable means of making money.
The truth of the matter is, anyone that takes the time to study how it works can succeed over the long run.
One of the best known trading philosophies is the concept of value investing. Made popular by Warren Buffett, others have copied his principles to achieve results that beat the S&P most years.
Kingstown Capital Management built their entire business on these tenets, as all of the success they have enjoyed to date has their roots in the principles of value investing.
If you want to follow in their footsteps, the tips discussed below will help you get there in due time.
1) Buy businesses whose stock price is valued less than its book value
Determining the value of a business by its current stock market price is the worst thing you can do. Investors that act on the mania surrounding an industry or company are often setting themselves up for a big loss at some point down the road.
What you should be doing is looking into the book value of a business, or what its assets and earnings are in reality.
Indeed, one of the best times to buy is when the masses are stampeding for the exits, as this situation greatly reduces the stock price of companies that have solid fundamentals.
These businesses will continue to do well over the long run, so it makes sense to buy and hold them even if current stock market performance seems to suggest otherwise.
2) Be passionate about companies you buy into
Successful investing depends on you being enthusiastic about the market sectors in which you get involved.
If you buy a company based on its fundamentals, but it is something that bores you to tears, you won’t have the burning desire to follow its fortunes from quarter to quarter, nor will you have the interest to extrapolate what its results will look like in the future.
This can result in you missing key pieces of information that would have prevented you from taking a loss you would have seen coming if you were paying closer attention to what was going on.
When you have a deep interest in a company, keeping on top of its performance and the macro factors in its industry is more of a pleasure than a chore.
3) Look for a great management team
When you are doing your research before purchasing a stake in a company, pay special attention to how the management team has run the business in recent years.
Have they set goals they have been able to hit with consistency? Do they take responsibility for mistakes that have been made, or are they constantly trying to gloss things over in financial reports?
By reading through these documents and listening to hours of conference calls, you’ll be able to get a clear picture of whether the leadership in this company is solid, or whether they have been riding a wave of good fortune that will drop them as soon as economic winds shift.
