Book Link: Getting started in value investing.
Getting Started in Value Investing is a terrific guide for anyone studying the discipline of Value Investing. The text is also an excellent companion for experienced investors as well. The author does a excellent job explaining the Value Investing process. He presents the material in a manner that really helps the reader get in the Value Investing mindset. Regardless of investing experience and knowledge, all investors seeking better results will benefit from reading Charles Mizrahi’s book.
Value Investing is one of the most written about subjects in the finance/investing space. There are dozens of books just covering methods of Warren Buffet specifically, plus dozens of other texts on the value approach. It’s never difficult to find this kind of reading material, yet it can be difficult to discern the truly meaningful content from the vast pool of titles. That being said, there are good number of Value Investing books that pretty much contain the same information thereby conveying same message. At least, that is what I have encountered from reading scores of writings on this subject.
Essentially, after reading many Value Investing guides, I began to have the notion that if I’ve read several, I must have read them all. Yet, When I discovered Getting Started in Value Investing, I quickly recognized that it was no ordinary investing guide. The value methodology and principals remain the same, but the presentation of the material and the manner the author delivers the message is highly effective. Mr. Mizrahi has unique and wonderful writing style that is entertaining and captive, allowing the material to really “sink-in”.
Getting Started in Value Investing is not just another investing book, and it’s not just a beginner’s manual either. It engages the reader, and the flow of information is so well organized that it reads effortlessly. Mizrahi’s examples and illustrative stories train the reader’s mind to think and operate in the Value Investing mental framework. Knowing the principals and methods to Value Investing is rather worthless unless they are properly practiced- when it counts- differentiating the noise from the news, when money is at stake.
I have come across little investment literature that provides level of beneficial information received from reading Mr. Mizrahi’s work. It’s helped shape my thinking- by adopting a stronger focus on value, which I have gained through the text’s memorable examples and pep-talks.
Mr. Mizrahi opens with a quote from Warren Buffet commenting that in 35 years of investing, he has not witnessed a trend towards the value approach. “There seems to be a perverse human characteristic that likes making easy things difficult.” Successful investing is not difficult if one applies the Value principles correctly, along with reducing preventable mistakes as possible. Success is about making more good investment decisions than bad ones. Reading this book explains how Value Investing increases the probability of good decisions and limits the risk of making poor investment decisions.
Getting Started in Value Investing begins with the author stating the book will teach all the methods one needs in order to invest successfully. Yet, he adds a caveat: successful investing will depend on the ability to keep emotions in check as well as avoiding the latest fad on Wall Street. The book demonstrates how to remove emotion and act on the facts.
Getting Started in Value Investing contains all the tools that the reader needs to be an successful Value Investor. Each method is clearly explained, and also demonstrated with effective examples. Mizrahi explains how to analyze firm management, financial statements, competitive position, and how to calculate a stock’s intrinsic value along with applying a margin of safety. These are the tools needed to identify attractive investment opportunities.
My biggest investing weakness is making a trade on emotion without doing the necessary research. When I analyze my poor investment decisions, often the reason is “Just wasn’t thinking.” It just happens, I get caught up in the market noise and act without much thought, or even the realization of what I am doing. Investors must resist being transfixed on the whims and emotions of the market. The Value Investing approach hinges on taking advantage of the Market’s mood swings by purchasing stocks at a considerable discount to true value. A stock price less than its true worth provides a margin of safety. This reduces risk because an investor has more leeway with the accuracy of his/her intrinsic value opinion. For example, if one believes a stock to be worth $50, but in reality, the true value is $40, the investor will still make out all right buying at $30, when unreasonable investor sentiment causes a stock to be undervalued.
It’s very easy to lose sight of the pillars and principals of Value Investing when the market is being testy. Remaining steadfast to the value tenets and not wavering during volatile times can be challenging. This requires the confidence to believe that he/she has the correct view, versus the collective view of investors. Mr. Mizrahi provides motivating insight on how to deal with Mr. Market’s psychosis, and illustrates the mental framework needed to resist succumbing to market distractions.
The hardest part can be pulling the trigger on an undervalued investment even though one has performed extensive and thorough research. Market noise can lead to excessive pessimism of investors causing them to overlook the long-term value of a company. The market can ignore a firm’s strong and honest management, the longevity of the competitive moat, and its solid profitability and return on capital. The Value Investor must determine if those factors are likely to remain intact going forward, which thereby answers whether or not, the excessive pessimism is warranted. Reading this book will teach how to distinguish value plays from value traps.
Who’s right? The Market or the Value Investor? To paraphrase a quote from Ben Graham that Mr. Mizrahi shares in his book: if you base your investment decision on exhaustive research and factual data, then take action regardless if others disagree. The opinion of others doesn’t determine whether you are right or wrong. Your opinion is right because it’s founded on extensive research and judicious reasoning. Reading this book stimulated my thinking and decision process, helping me to be cautious when I haven’t performed necessary research, and aggressive when I have.
It’s much easier for humans to cope with making a bad decision as long as everyone else did as well. A Tough pill to swallow is a poor decision made against the grain. Getting it wrong when everyone else gets it right, evokes considerable emotional distress, as opposed to everyone getting it wrong with nobody getting it right. Those disproportionate emotional/mental pay-offs spawn the herd mentality because it shields us from “Looking Dumb” which is a title for the section addressing that issue in the book.
The author provides anecdotal illustrations of how to think and act in order to invest successfully. I love an example he gives about buying “straw hats in the winter” may appear to be stupid, but combine the low winter price and the Summer demand, and six months later, that stupidity turns into high profitability.
I truly found this book to be an instrumental addition to my library. The writing and explanation are excellent, and the examples and anecdotes are highly illustrative. The book provides the necessary tools and explanation for evaluating investments. In addition, and probably most important, the book succeeds with illustrating the proper mindset and thinking needed to take action. I recommend buying a copy.
Source: Turley Muller's blog: Financial Alchemist