Value Investing: The 4 Principles

Today I’m going to talk about the 4 principles of Value Investing.

When I was first learning about investing, I gravitated toward Value Investing as it has 4 simple principles to follow. I wanted a systematic approach for investing as it’s overwhelming to decide where to put my hard earned money. The 4 principles of Value Investing are:

1. You are capable of understanding the business you are investing in​
2. The business has a natural quality to it that provides an advantage for it
3. The management of the business is honest and skilled
4. You are paying a fair price for the business

Wait a minute, why is there all this talk about a business. I thought I was just trying to decide which stock to buy?! 

When you buy a stock, or invest in a stock, you are buying a portion of the business. 

I had never thought about investing in the stock market this way. In all honesty, I didn’t really know what it meant to buy a stock. Having learnt this, I realized that I already make choices about what business I want to support in my day to day life so I can transfer this principle to my investing practice. 

These four principles help provide a roadmap for you to follow when you’re considering which business to invest in, aka. which stocks to buy. It helps you eliminate being tempted by greed or swayed by fear which drives so many people's investing decision making. 

It provides a systematic, steady approach so you can plan out what you’d like to do and then wait for the opportunity to take action. You’re like a hunter. Or in my case, this approach fits so nicely with my proactive and organized personality (google type A personality traits if you’d like to learn more about me). I want to make wise decisions based on sound information, not based on what other people are doing.

One line that I love from the book Invested is “investing is not about being smart; it is about knowing that what you’re buying will be worth more in ten years and being patient.” The 4 Value Investing Principles will help you to determine that. I’ll dive into each of these principles in more details in my upcoming blog posts.

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