What does it take to be a successful value investor?
Temperance, diligence, and patience are three character traits necessary for successful value investing.
Temperance is required to control greed when the investing masses want stock at any price. Diligence is helpful in assisting the value investor determine when the masses are offering a discount or opportunity to sell at a premium. Patience is necessary to reap the rewards after waiting for the harvest to be over.
Gurufocus.com assists the value investor in developing those character traits. Starting with diligence, the aspiring value investor should consider looking at historical insider transactions. The chart below shows continuous insider selling of American Tower (AMT, Financial).
Should value investors be nervous? Not necessarily. They must do more research. Do you know which, if any, insider is the "smart money?" Of all the CEOs and directors that flip flop between jobs, how many of them are really great investors?
Further diligence would require looking at the transaction history of investment Gurus. You may find the smart money is not management, but the billionaire buying stock. Below is a chart of the number of AMT shares held by Pioneer Investments, a firm with over $25 billion under management.
Temperance is the next virtue. Self-control and restraint are essential when greed is rampant. The chart below shows the price the investing public is paying for AMT revenue. A value investor in control of her emotions will see the price paid for wireless and broadcast communications real estate revenue go up and down. In good times the public pays a large premium over revenue. In bad times, like 1997 and 2002, the price paid for revenue is less. A value investor should exhibit self-control and not hoard cash when the rest of the public is.
Patience is also essential in value investing. Instead of thinking about what the dividend yield is today, value investors project what the dividend yield could be in the future based on their original purchase price. This "future yield" is not guaranteed, but could be very lucrative.
The patience required could be 10years, like American Tower Corp. Purchasing AMT in 2002, when fear was rampant and the stock was trading at $1.06/share, the $1.30 in dividends paid today would exceed that price. In other words, had the patient value investor held for ten years her annual dividend yield on original investment would be above 100%. That is the reward for exhibiting these virtues.
Let Gurufocus.com assist you in developing these virtues.
