1) Read investing articles by great investors (try those with at least a CAGR of 15% return for at least 10 years) and underline important things. Once I finish reading, I will rate with a rank of 1 to 5 (e.g. 4/5 or 4.5/5) and file those with 5/5 right at the top. Somehow I notice that the articles written by deceased investing legends are the best. I have only one 5/5 ranking in my archive which is a 1976 interview with the father of Value Investing, Benjamin Graham. Most of those with 4.5/5 are by Joel Greenblatt.
2) Be patient. I can't stress it more than what the world's greatest investor Warren Buffett said about it being the most important characteristics of a great value investor. I do agree with him, and you do not need to have awesome knowledge or skills to do well. Once you have a decent amount of knowledge, being patient will be the greatest asset one could have.
3) Read lots of investing books. It is only recently that I started to underline the important parts and write the pages I underlined on the first page. For a start, you could go to the library and browse some books. Once you do that, go Amazon.com and read their reviews to own a copy. If you see more than 100 reviews and the average rating is at least 4.5/5, that should be probably be good enough, but be careful of dubious reviews skewing the rating. In fact on the hindsight, only one of my top five favorite books on investing has a rating of around 4/5 in Amazon.com. The rest are at least 4.5/5. My favorite book is still "One Up on Wall Street," despite it being among the first few investing books I read.
Lastly, I have found that the most effective way to learn investing is to find books with many case studies which is also the approach Harvard Business School uses to educate their students. It allows one to reverse engineer the mindset of some of the greatest investors and the rationale behind each individual stock they bought or sold.
4) Make an investment checklist and constantly update it. Even two years after creating my own checklist, I am still working on it, and I think it's going to be the foundation of any investing I do before I buy or sell a stock in future. Do include qualitative (competitive advantage/economic moat, possible questions to ask management, etc.) and quantitative factors (earning yields, ROC, NCAV, P/E ratios, etc.).
5) Classify your investments and investment styles so you will know the reasons why you buy and will sell in the future. For example, in the Singapore stock exchange: Hengxin Technologies belongs to the kind of deep value play of Walter Schloss and Benjamin Graham, and even the kind of stock Warren Buffett would probably own when he first started out. If you read "One Up on Wall Street" by Peter Lynch, Usana Health Sciences (USNA) is the kind of growth stock I think Lynch would like to own.
Then you may have those kind of large-cap stocks with a strong competitive advantage (free cash flow cow) like Coca-Cola (KO) that Warren Buffett started to own when Berkshire Hathaway (BRK.A)(BRK.B) morphed into a gigantic holdings company. But I prefer small and mid-cap stocks with a strong competitive advantage, and USNA fills those characteristics.
Or one could use the simple investing style that Ben Graham advocated before he passed away. It is to buy a large number of cheap stocks using a metric like low NCAV or price/tangible book, which is also quite close to Joel Greenlatt's approach of combining return on capital and earning yields. This approach requires a minimal amount of time as compared to other styles, since in-depth stock research is completely abandoned in favor of the "law of large numbers" working to your advantage. I have unquestionable confidence in using this approach in the U.S. stock market, but definitely not in China's stock due to the lax accounting standards and prevalence of accounting fraud.
The beauty of this is the simplicity of being logical and statistical in approach while achieving a great return at the same time!
Note: A non-technical way of defining the law of large numbers (as above) is, "Own a bunch of companies with Apple computer-like characteristics and even though you wouldn't know for sure which one will do well, you can be pretty sure that on average they will do quite well."
Also check out:
- Warren Buffett Undervalued Stocks
- Warren Buffett Top Growth Companies
- Warren Buffett High Yield stocks, and
- Stocks that Warren Buffett keeps buying