I Buy Stocks as If I am Buying the Whole Business

Summary

·         Value Investing 101

·         Evaluating the stock’s intrinsic value

·         Bear Markets and Recessions

·         Practice to become a sophisticated and accredited Venture Capitalist

 

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Benjamin Graham “The father of value investing” said that he makes investments as if he was buying the entire business. Personally, I took this statement seriously and decided to make that statement my entire long-term investment strategy.

Even though I might be buying a few shares of a company, I try to act is if I am buying the entire company. When purchasing a stock, I always take the current stock price and multiply it with the number of shares outstanding then ask myself “Would you buy the whole company at this price?”. If no, then I would not buy it and then go look for another bargain.

This is value investing 101. Always be on the lookout for undervalued stocks, buy them at the right price, hold them and then sell them for profit when the stock has appreciated to an overvalued price. If I see growth for the future at that point, then I might hold that stock indefinitely within my portfolio.

When I follow this strategy, I do not fear the day to day volatility of the market, I tend to look at the market for the long term. I am constantly evaluating the intrinsic value of the stock and I can tell whether the stock has become overvalued.

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I embrace huge downturns in the market because it is a chance for me to add more stocks to my portfolio that are severely undervalued. It is like walking into a store with quality goods and everything is on sale. A recession like the 2008 housing crash was like walking into a store with everything on clearance.

In these times of market lows, I focus on picking the winners and have promise for the future despite the market psychology being rather negative at the time. Even in times of optimism I still focus on picking the winners at reasonable price points, but if you are brave then short selling overvalued losers may be a good strategy.

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I adopt the value investor strategy because I have seen it build wealth over time and has been proven by many successful investors if done correctly. Warren Buffett is a perfect example of a successful value investor and has even said himself that having this investment philosophy is one of the main reasons for building his wealth.

Using this strategy is also good practice for me because in the future when I can become a sophisticated accredited investor I will be able to be an angel investor or a venture capitalist. I have stated in a previous article that my goal as an investor is becoming a venture capitalist.

 Practicing evaluating companies as if I was going to buy the whole business is perfect practice for venture even though you are not buying the entire business, but you will be buying a huge portion of it.

In my opinion investing this way is much simpler and just a better way to see consistent growth over time. In addition, I love to study different companies, assess their management, operations and products. I’m a big fan of how business works, and I enjoy learning as much as I can.  Doing this analysis everyday will not only make me a better investor, but also a better business man that develops a set of principles to become successful in my own ventures.