(1) Stock Market is Tough Place to Create Any Money Systematically.
NASDAQ or SP & 500 averaged out about -6 % per year for 5 years between 1999 and 2003. Many individual investors who made killing in the internet bubble period got wiped out during those 5 years. Many who believed Wall Street experts by investing their life savings into mutual fund had rude awakening after the huge deprivation and scandals in many of the famous fund names. Numerous academic studies have shown that more than 90 % of mutual funds failed to beat market over the long run and that more than 90 % of individual investors lost money in the stock market. Too many people and too many Wall Street experts or mutual fund managers are purchasing and trading stocks like madmen, with no sound strategy or any promise of long term success. Ironically, they’re the ones who create opportunities for prudent, long term oriented investors. To be successful in stock market, you either have to become an expert yourself or to seek help from real successful experts. Stock market is such a brutal place that there is no room for half-expert or expert pretenders. The truth is that only a small percentage of disciplined and experienced people earn disproportionate huge amount of return, many times at the expense of the rest. It is an insult to “Wall Street expert” professional title when so many of such “expert pretenders” failed to beat index or merely stay break-even.
(2) Majority of huge performance claims in Ads by “Experts” are not real.
Too many investment newsletters or hot mutual funds touted their huge past performance and went into disaster later on. Who do you believe? I have been in this stock market long enough to know that majority of their claims are not “real”. I will tell you why below. The first reason is simply due to “cheating”. Let’s be honorable about many Ads. Many of them do not tell the whole and true story of their execution. For example, they would tout huge percentage of gains for certain winning stocks and hide the losing stocks. If you look deeper into their whole portfolio performance, their portfolio performance was not impressive at all. Many investment newsletters will have multiple portfolios in publication. In their ads, they will only mention the performance of the winning portfolio and hide the losing portfolio. The problem with multiple portfolios is that when you subscribe to their newsletters, you would not easily know which portfolio out of many will have best performance in the long run. Which portfolio do you follow? Most important of all, which portfolio out of many does the newsletter author invests for his her own money? If the newsletter author or the mutual fund manager does not invest into a portfolio himself or herself, how would you trust their services? Even if past performance of a newsletter or a mutual fund was pretty good, it may not indicate good performance in the future. Many hot technology mutual funds jumped up 100 % or more in the 90’s and dived to their death after 90 % to 99 % of loss. Certain investment methods such as growth stocks investing are known to be risky. Momentum investing or day trading methods are known to be extremely risky methods that can wipe out life savings over night. There is simply no free lunch. While a risky method can produce fib gain in relative short term, over the long run, a risky method is more likely to make people poorer rather than richer even if a short term gain was gigantic. Gigantic short term gain is just an unsafe stock market trap to lure the inexperienced people into the market. Dreaming for instant satisfaction of huge little term gain overnight with speculation is just a recipe for disaster ahead.
(3) Value Investing is the Only Proven Safe Method.
Value mutual funds are well known to have low volatility than increment mutual funds. Numerous industry and academic studies have shown that value stocks as a group performed far better than growth stocks in bear market. Many engineering and internet so called “growth stocks” lost 90 % to 99 % of value in just a couple of years after 2000 while many value stocks went up during the same time frame. In fact, the single most important element to obtain high investment carrying into action over the long run is to maintain MARGIN OF SAFETY of a portfolio. That is why the greatest investor Warren Buffet once quotes “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”
(4) Value Investing is the Proven Method to Make Big Money in the Stock Market.
I know that I ‘m going to pick up a lot of flak for saying this, and that many people will misunderstand what I ‘m saying. There are certainly other method acting’s of investing or trading, which made people rich. There are certainly many under - performing value mutual funds, which give people wrong impression that value investing is equivalent of low performance with less risk. However, I want to stress that in fact value investing is investment style that can obtain high performance with less risk. I want to stand by my above statement for the following reasons:
* In the early years of my investment career, I have studied and tried all kinds of well known methods of famous investors or traders, Short term trading, Momentum trading, Technical Analysis, CANSLIM, growth stock long term buy and hold, Random Walk theory, etc.. I have been there and I have done there. Evidenced by my past investment performance, value investing is the only method that delivered gigantic investment return consistently for me over past many years. In 2003, I have made more than $150,000 in stock market with value investing method. In 2004, I have made even more money than 2003 so far. With the power of compounding, there is really no upper limit for the investment profit with value investing.
* In 1984, Warren Buffet gave a speech titled The Super investors of Graham-and-Woodsville, which categorized performance of many famous value investors who beat market year in and year out. Many of people mentioned in this article are legendary multi-billionaire right now. It is true that only a small percentage of investors can beat market consistently. However, it is not by chance at all that so many of students of Benjamin Graham became super riches in America while other methods have not produced that many rich people. It is also not coincident at all that the second richest person in the world is a value investor named Warren Buffet, a student of Benjamin Graham as well.
(5) Value investing will not distract your regular job.
The nicest thing about value investing is that it will not distract your veritable job if you choose not to stare at the stock market often in your office. In fact, it is quite healthy to forget about stock market in your office and worry about that only at your place after work. Many newbie’s in the stock market still believe that if they stare at stock price quote closely, they can obtain better opportunities of winning. It will not. Staring at the stock quote is least important part of this game. In fact, staring closely at the stock price quote is more likely to create a loser rather than a winner because of greed and fright in the stock market. The more one is unable to resist the mad mood of Mr. Market, the more likely one is unable to invest successfully with value investment method. I am not saying that successful value investing does not require time. The time you will need in value investing depends on the investment vehicle you utilize. If you invest with a value mutual fund, you will not need much time in stock market and you only need to follow up quarterly with your fund’s performance. If you are a passive investor of my investment newsletter Blast Investor Real time plus and you follow my model portfolio passively, you will only need to pay attention to my infrequent trade alert closely and read my newsletter issues every 2 weeks. If you invest by yourself, you will certainly need hours of time every week to look at hundreds of value stock leads and do your own due diligence by reading 10Q or 10K SEC making full, or by listening to conference calls, or by talking to company’s management.
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