In what he promised would be a “holistic perspective” on value investing, Blaine Robertson offered a relatively short book (146 pages) with a very long subtitle, “Value Investing: A Comprehensive Beginner Investor’s Guide to Finding Undervalued Stock, Value Investing Strategy and Risk Management.”
Robertson is also the author of beginner guides to corporate financial analysis, QuickBooks accounting software, job interviews and real estate investing.
In the value investing book, the author made good on his promise to help beginners get started. The introduction deals with the differences between investments and savings, the benefits of investing and the steps involved in starting to invest.
First, though, he pointed out many of us have invested without necessarily recognizing it. For example, investing in education, whether as a doctoral student or trades apprentice. Essentially, we have committed some of our current resources with the aim of gaining a future benefit.
Turning to financial investing, Robertson referenced one of the gurus:
“Warren Buffett (Trades, Portfolio), who is arguably one of the greatest investors of all time, provided his own definition of investing. According to him, investing is the process of laying out money now to receive more money in the future. The intention of the investor is to put his funds into one of the investment channels, and then watching it grow over time.”
That information points to the definition of an investment, which is something of value, acquired with cash, that is expected to increase in value over time. He added that investments can be categorized into three groups:
- Ownership investments include stocks, real estate and works of art. They are the most volatile type of investments, carrying the greatest risks and the greatest rewards. In the case of stocks, you are granted a right of ownership to a certain portion of a company, including a share of the company’s future profits.
- Lending investments refer to opportunities in which we loan our money, and in the realm of investing, that normally means buying bonds. As Robertson pointed out, lending investments generally involve less risk than ownership investments, and so they offer lower returns.
- Cash equivalents refer to vehicles such as money market funds. Normally, the yield on these vehicles is very low, which reflects the fact there is practically no risk. As the saying goes: “as good as cash.”
Robertson next turned to the differences between investments and savings, saying, “A lot of individuals tend to mix up the concepts of savings and investments; however, they are not the same. They play different roles in the lives of individuals either saving or investing.”
When we save, we are putting away something of value for future use, and generally that means a relatively short holding period. For example, we might save for a vacation we plan to take in the next couple of years. Risk is minimal, and while some interest may accrue, it won’t be very much.
On the other hand, when we invest, we are buying assets that we expect will be worth more in the somewhat distant future. The holding period is expected to be much longer, and the objective is to fulfill a major (and expensive) goal such as retirement or getting an education. Investments also mean the assumption of greater risk, which can potentially lead to bigger losses or gains.
A couple of other points of interest: distinctions between gambling and investing, as well as between trading and investing. Both gambling and investing demand some measure of speculation, but where they critically differ is in time periods. The gambler seeks an immediate return, while the investor is prepared to be patient and wait. Time horizons also distinguish traders and investors.
Next, Robertson leads us through the benefits of investing, noting, “The benefits of investing are numerous. For ease of comprehension, I will try to list and explain them simultaneously.”
- Wealth creation: As the author said, this is a no-brainer because if don’t invest, your money doesn’t grow. Most investments will provide at least some wealth if held for a relatively long period.
- Beating inflation: Investing is the only way to stay ahead of the rate of inflation. He wrote, “The gains from the investments will keep your purchasing power constant.”
- Create retirement funds: You feed your retirement savings plan while you work, and when you retire, your retirement savings plan feeds you.
- Reduce taxes: Some investments can help you reduce taxes and put more money into your pocket (or back into your investments).
- Generating high returns: The spreads between interest earned in a savings account and an investment tend to be significant.
Finally, there are three stages in which an investor moves from watching to doing:
- Earn money: It’s necessary to make or have more money than you spend, to create a stake that can be invested. Usually, that initial stake comes from working, from employment income. Robertson also notes a distinction between active and passive income. Active income comes from working, while passive income comes from investment returns. Over time, the goal is to move from active to passive income.
- Save enough to invest: This seems somewhat repetitive, but Robertson made the important point that there is also a need to refrain from unnecessary spending if you are to build up at least a small pool of money to invest. He added, “A lot of the time, the bulk of the spending we do are on things we can easily live without. And what is most tragic about it is that we often do not realize when we are overspending.”
- Invest: As the author noted, many people want to invest but never do. Wanting is not enough, it must be accompanied by action. There are also those who do invest, but do it the wrong way because they are trying too hard to avoid risk.
That would appear to be a transition to Robertson’s goal, which is to help beginners understand and make money through value investing.
Conclusion
In the Introduction to “Value Investing: A Comprehensive Beginner Investor’s Guide,” Robertson provided a foundation of useful knowledge for new investors.
He made several important distinctions, between investing and saving; between investing and gambling; as well as investing and trading. In each of these cases, the major distinction is the time horizon. Saving, gambling and trading each are short-term activities, while investing is a long-term activity.
In addition, the author spelled out the types of investments, the benefits of investing and the steps involved in starting to invest.
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