Contrarian Value Investing

One often hears the Oracle of Omaha (Warren Buffett) say “value investing is simple but not easy”. The million dollar question is….is it true?
I will get to the point and say yes it is true. When I first read about the stock market, I will admit I was a bit intimidated. Think about it for a moment. The people I saw on television talked, breathed, and lived the stock market. Forget Bachelor Degrees; MBA’s and PhD’s are common on Wall Street. And these PhD’s are not coming from some small university in the Atlantic Ocean. We are dealing with Ivy Leaguer’s who are suppose to be the best of the best; at least that is what they want us to believe. I thought to myself “Sheesh how is a kid from East Los Angeles going to beat these guys.”

It all changed when I read the forward by Warren Buffett in The Intelligent Investor in which he states:

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.- Warren Buffett

Let those two sentences sink in for a while.
Indeed, value investing is simple but not easy. At its core, value investing is searching for that dollar that is available at fifty cents. Trust me folks; it is easier said than done. Reading 10-K’s is not the most entertaining read. For every United Rentals (URI), there is a Vineyard National Bancorp (VNBC) (stupid management). But that is part of the game. In the end, if I my correct calls outnumber my bad calls, I shall be fine. This past month the Garcia Value Fund was ranked in the top 25% for the first time (out of 80k or so virtual mutual funds). What I am more proud of is I am outperforming the m100 (purple line), which represents the best of the best on marketocracy.com. So how did a kid from East Los Angeles get off to a tremendous start?

1. Read, Read, Read- I read two newspapers every, have ordered a ton of books on Amazon, and visit a ton of websites/blogs. In February, I wrote about four underrated value investing books that are informative and a great read.

“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time - none, zero. You’d be amazed at how much Warren reads - at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”-Charlie Munger

2. Do not copycat anyone- My motto: “Model yourself after Buffett, but do not be a Buffett clone.” Find a style, modify it and constantly improve it. After all, whats the fun in copying someone else?

3. Be Positive- Economists will always make it seem as if Armageddon has arrived; One has to be confident that each morning millions of Americans will wake up and go to work. Slowdowns, recessions, etc have been around for centuries, and guess what? They will continue to be around for centuries.

“Any man who is a bear on the future of this country will go broke.”-J.P Morgan

If you enjoyed this post, make sure you subscribe to my RSS feed!