Monday, October 09, 2006

Necessity of Innovation...

If we take the field of value investing, it boasts of stars like Benjamin Graham, Warren Buffett, Charlie Munger, Walter Schloss, Michael Price, Andrew Weiss and many others. All the above mentioned stars have distinct stock picking methods but the same philosophy as the guiding light i.e. Value and Graham

After studying books, articles and academic papers on value investing, I have realized that no perfect method exists that can be picked up without any improvisations and adopted. Innovating continuously is the essence to finding one's own method or methods which can be used and that method has to be individualistic i.e. dependent on the person because everybody's level of risk tolerance, patience and synthesis abilities are different.

Trying out different variations of the themes of value investing, getting used to the routine of carrying out a similar activity day in and day out (For me, it is looking for bad news in the newspapers), understanding the real time psychological factors at play in the stock market are just some of the tasks for anybody wanting to seriously invest using a value approach.

Herein comes in the importance of a sound theory structure as advocated by Charlie Munger in one of his speeches. With a robust theory structure we can tackle the above tasks with much more surety and less strain. Mind you, it cannot guarantee success but it can surely tilt the odds in your favor. This also means that instead of letting the stock market be our master, we can have time tested and successful value investing approaches which would rest on a sound theory structure and would be the guiding light for us.

The theory structure can be derived from exposure to the markets or exposure to reading material and experiences of others. I prescribe to the second way, because it is cheaper and my limited ability to synthesize new information at a fast pace negates the first option. I would rather learn from other people's mistakes than make mistakes and lose money myself. And reading should encompass finance, psychology, probability and economics related books so as to help one in understanding the working of the business and the share market in deeper detail.


Anonymous Steven... said...

You basically want to learn the cheap way..don't you ?

10:11 AM  

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