“To value investors, there is no stock market. There is just a market of stocks in which investors can trade.”
Long-term, emotion-free investing put beautifully by Charlie Tian, the author of "Invest Like a Guru."
The quote also captures the essence of the book, especially for novice investors. Tian wrote the book to reflect upon the lessons he learned from his investment experience. It is a go-to resource for beginners who want to avoid the missteps of amateur value investing.
The book is basically an interesting and easy-to-use guide for finding companies with high reward to risk, which is explained through examples and case studies. It’s really a book for beginners in investing. It touches on all the dos and don’ts facing an investing novice. Value investing isn’t as simple as it sounds, and beginners can fall into all kinds of traps. "Invest Like a Guru" details almost everything necessary to help beginners avoid missteps.
Market sentiment, dear loss and bubbles
It’s easy to get off track while reading a book on investment philosophy. Tian starts the book by addressing the market sentiment problem through his personal experience with optic fibers, which keeps the reader interested. The introduction also demonstrates a classic example of holding on to a loss-making position. He goes on indicating the follies of buying high and selling low. The part of bubble buildup is really well done by the author explaining the “who and why” of a bubble market.
Learn from the learned
The first chapter beautifully summarizes the investing ideologies of investment gurus including Warren Buffett and Peter Lynch. The commentary on Donald Yacktman’s hurdle rate is quite interesting, providing insight into the discipline required for value investing. The first chapter summarizes what to look for in a company. The book then continues with the problems of deep value investing. Margin of safety graphs are remarkable as they precisely explain those problems. Sears’ (SHLD, Financial) example is also among the second-chapter headlines. Tian managed to put extensive, easy-to-consume information in the deep value investing chapter.
What to buy?
The middle chapters of the book detail many key points about value investing including buying good businesses and indicators that can be used to identify good businesses. The charts are really well done and self-explanatory. "Invest like a Guru" also touches on the topic of passive investing with some profound information. The book reveals a unique approach to investing in passive funds and ETFs by not looking at their performances in the rearview mirror. The section about asset plays and turnarounds provides striking information regarding the investing approach that should be used by a learning investor.
Valuation insights
Regarding valuations, "Invest Like a Guru" is a good primer on valuation techniques like discounted cash flow (DCF) and price-earnings (P/E). The book explains DCF and P/E valuations with examples, which makes it easy for a beginner to grasp. The book addresses the company-specific and general market valuations. It should also be read by investors using gurufocus.com regularly as it advises how to get the most out of the Web site.
The best of the book
My personal favorite is Chapter 6, which presents a checklist for screening good companies and gauging their values. Adhering to this checklist can make things easier in terms of researching a company. Novice investors can literally take a leaf out of Chapter 6 of Tian’s book to find good companies at reasonable prices.
Another interesting thing was the mention of Tesla Motors (TSLA) in relation to high-growth companies. The part makes it clear why companies with explosive growth are a dangerous idea; Tesla was the perfect example.
Final thoughts
Following the book to its core might not get you astronomical returns, but it would probably result in decent returns with relatively lower risk and peace of mind. The book is certainly recommended for investors who are just starting careers in the investment arena. As a beginner, it can get really difficult to read all that investment professionals like Buffett and Lynch wrote over the years. Tian has done a good job of summarizing their thoughts as this book provides extensive insight into the ideologies of top investment gurus.
The book may not help you capture crazy returns, but it will help you earn decent returns at a manageable risk. Put in other words, the book is specifically for value investors looking to go long without the hassle of following new developments frequently.
Disclosure: I have no position in the stocks mentioned, and no plans to initiate positions within the next 72 hours. This is an independent book review as this article doesn't entail any compensation for the purpose of the book review.
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