Think about it, if you can become a value investor just by knowing the formula to compute the intrinsic value of a company, why aren’t mathematicians rich? If you could only read books and become a value investor, why aren’t librarians rich?
I think reading and knowing math is a requirement, but not the edge that value investors need to become successful at investing. After all, you can buy the same books that the masters read, and use the same formulas that others use. I think, thinking and patience is the key.
Thinking
When the billionaire George Soros got into managing money, he was a philosopher. Yes, an actual degree in Philosophy. It wasn’t worth as much as an MBA, but Philosophy have an advantage, it taught people how to think clearly.
He wanted to know if there was the right kind of thinking that affects people and he wants to prove his thesis where he could make money. He called this Reflexivity. What better way to test this out where you can get rewarded if you know how people think, but the financial market? Then goes Soros becoming one of the richest people on earth.
Being able to think for yourself is key. Riches in the market comes to those who think differently from the crowd and be right at the same time. Being independent and contrarian is one thing, thinking correctly is the hard part. The crowd can be right too. And most of the time the crowd is right. You can not be a contrarian just for contrarian’s sake, you must also be a contrarian and correct at the same time.
Patience
We have talked about patience a lot of times in this blog. But I really do think that successful people are patient. Charlie Munger once told the story of having read Barron’s for 50 years, looking at its stock tips, and only after 50 years of reading does he followed 1 stock tip. This stock tip made him 20 times his money. He said that it was the first and only time that it had happen to him. Cementing the idea that there would only be a few opportunities in life. Being patient enough to wait and be courageous enough to strike when that opportunity does come.
One of my most favourite quotes of Charlie Munger:
“A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”
What about the formula?
In the Berkshire Hathaway annual shareholder’s meeting of 2018, Charlie Munger was asked by an audience if there’s a formula of intrinsic value that could be used to accurately compute the intrinsic value of a company. And Mr. Munger replied that there isn’t any formula.
Right now at my current status in investing, I think focus is more important. Having the focus to become patient. Having the focus to practice independent thinking. And the focus to read more books about the subject.