Kristal Insights5 Mins Read
From Prius to Porsche: How Affordable Value Investing Options Can Help You Grow Your Capital
Imitation, they say, is mere flattery. In the investment world though, imitation can be the difference between going big or going home with far lesser returns than you had hoped for.
‘Investment Gurus’ are the best kept open secret of investing. They are the north nodes of investing that every investor should follow – or rather, imitate. The tried-and-tested strategy of ‘value investing’ followed by these gurus can help you grow your wealth in a more holistic way than just pooling money in random strategies can.
To invest like a Guru, you must learn about value investing!
Value investing is a long-term investment strategy that’s followed by the leading financial ‘gurus’ of the world. Though each guru has their own unique approach to investment, they do share these general mindsets:
- To begin with, you must view yourself as a partner of a company that you choose to invest in. This will completely change the way you look at investments. Most gurus choose to invest in a company, and not its shares. So, do not only rely on the ups and downs of the market when making your decision – if a reputable brand is undergoing a tough time in the market, you can rest assured that it will claw its way back up.
Takeaway: Invest in the company, and its reputation.
- Most gurus make it a point to buy shares when their prices are under market value. This gives them a safety margin to fall back on, should anything go wrong. It limits your risk and increases the potential for profit significantly.
Takeaway: Always have a margin of safety!
- Buy and hold is one of the most popular investment strategies that tie in perfectly with the ideology of value investing. As value investing is essentially a long-term strategy, investors must buy stocks and sit on them for years until they grow in value and meet their expectations. Do not indulge in buying and selling based on market trends, as that isn’t exactly a long-term strategy.
Takeaway: Buy and Hold for as long as possible!
- Often, novice investors make two crucial mistakes. They buy shares when the prices are increasing because they do not want to miss out on being a part of a company’s fortune. Similarly, they sell their shares when they see them dropping, afraid of the low share price and their subsequent losses. A value investor does not base decisions on whether the market is bullish or bearish. They buy and sell shares based on the relationship between the price of the share and the value of the company.
Takeaway: Ignore herd mentality!
Before you start emulating any of the strategies followed by gurus, you must understand that you cannot hope to succeed unless you start thinking like a value investor.
Tell me more about these Gurus!
Here’s a list of the top richest people in the world along with their net worth. If you’re looking to be a finance wizard and want to be able to make it to this list, then these are the people you should worship:
Jeff Bezos Net Worth $131 Billion Bill Gates Net Worth $95 Billion Warren Buffett Net Worth $82.5 Billion Bernard Arnault and Family Net Worth $76 Billion Carlos Slim Helu Net Worth $64 Billion Armancio Ortega Net Worth $62.7 Billion Larry Ellison Net Worth $62.5 Billion Mark Zuckerberg Net Worth $62.3 Billion Michael Bloomberg Net Worth $55.5 Billion Larry Page Net Worth $50.8 Billion
And these are just the top 10! You can spend days scanning through a list of the world’s top 100 richest people and emulate their strategies to earn great returns.
When you’ve chosen the guru you want to emulate, then comes the tricky part – how do you go about emulating someone who’s pretty much a financial genius? Well, every guru has their own unique style, but ultimately, their strategies boil down to buying for less and selling for more. Sounds pretty standard right? Many of these gurus earn millions of dollars each year through dividends from their investments, which also goes a long way in establishing their financial wealth.
Let’s take a look at how top Gurus approach value investing:
1. Warren Buffett
As one of the first people you may think of when you think of finance gurus, Warren Buffett has a lot to say about investments. The man bought his first shares at the age of 11, and filed taxes by the age of 13 – so it’s safe to say that he is a prodigy. Lauded as a self-made billionaire, most of his wealth comes from Berkshire Hathaway, a conglomerate that owns over 60 companies including Dairy Queen, Duracell, and Geico, amongst others.
If you want your portfolio to look like his, you must place your faith in big, American brands like Apple, Coca Cola, TJX (which owns the popular chain TJ Maxx), MasterCard, Boeing. As you can see, this is just a small glimpse into what would be a highly diversified portfolio. What you should learn from this is that you cannot place your eggs in one basket. Pick different industries to keep your wealth safe.
2. Charles Thomas Munger
With a net worth of $ 1.8 Billion, Charles Thomas Munger stands at the 512th rank of Forbes list of the world’s richest people. Like Warren Buffett, Mr. Munger has his fortune tied into Berkshire Hathaway, which probably explains this investor’s wealth! His stocks are scattered across 4 main companies, and the man boasts of managing his own stocks as he hasn’t changed them since 2013.
If you want your portfolio to look like his, then you must invest primarily in the financial sector. For instance, Mr. Munger places his faith in The Bank of America, Wells Fargo and Co., U.S. Bancorp.
Fun Fact: Mr. Munger worked at a grocery store that was owned by Warren Buffett’s grandfather! Looks like the two had their destinies entwined since day 1!
3. Peter Lynch
If there’s anything that this investor believes you should learn from him, it’s the fact that he feels he always sold his stocks too early. When he found that Costco shares had risen by 3X, he hastened to sell them, only to find that they increased 50X in the near future. The same happened with his shares of Dunkin Donuts. Though he is an investment guru that everyone admires, with a net worth of $ 450 million, this is one part of his journey that he wishes he would learn from too! Billionaires. They’re just like us, right?
If you want your portfolio to look like one of the greatest fund managers alive, then here’s a breakdown of stocks that can help you: Universal American Corp., Tech Data Corp., Humana, USA Mobility, Emcor Group.
So, what do I get by emulating a Guru?
As an investor looking to grow their wealth, you have a lot to gain by emulating a finance guru. Here’s why we think investing like the Gurus is helpful:
1. The Trust Factor
You know when you’re in an airplane and you experience turbulence, the first person you probably glance at is the air hostess, right? If she seems calm, you’re calm, no matter how shaky the plane. But, the minute the air hostess starts panicking, you know you’re in for a bad time. Why? Because even though you don’t know her, you trust her.
2The same holds true for emulating a finance guru’s strategies. If a guru has placed his trust in a company, you know that you should too. When the market becomes turbulent, and these gurus do not sell or waver in their belief in the company, you know that you should do that too. Of course, it is important to note that they make mistakes too. Peter Lynch famously said that even if you’re great at this business, you’ll only be right 6 out of 10 times. But, if you’re trusting these gurus, the odds are that you are in safe hands.
2. Record Low Volatility
The last 10 years of the market has seen a record low volatility, which means that now is the time to invest. Even if you look at the companies that these gurus have invested in, you’ll see that their shares and stocks have rarely faltered. Emulating their investment strategy can mean fitful sleep for young investors, as opposed to a sleepless night filled with dread.
3. Maximise Sharpe Ratio
The Sharpe Ratio is a concept that was developed by Nobel laureate, William F Sharpe. The ratio exemplifies how the return of a particular investment compares with the risk of the same and is a great tool for new investors to leverage. When the ratio increases for an investor, it is a good sign, and ideally, this tool should be used while diversifying the portfolio.
It is calculated by subtracting the risk-free rate from the return of the portfolio and dividing that by the standard deviation of the portfolios excess return. When you emulate the strategy of gurus, you can maximize your Sharpe Ratio to the fullest.
4. Keep the Drawdown Low
The term drawdown refers to the reduction in equity when used in the context of trading. In the context of banking though, it means the gradual process of accessing funds. Drawdowns are used to determine the level of risk that an investor faces, which is why keeping the drawdown low is often what you should be rooting for. Emulating the strategy of gurus who understand the way the market moves can help you keep your own portfolio from facing high risks.
And, you’re saying I can’t try value investing on my own?
Let’s put it this way – you can if you have all the time in the world to analyze your stocks. However, if you are a new investor who also has a steady job and other things in life to pay attention to, then it just makes sense to let a professional take care of these things for you.
The time factor isn’t the only one to consider though. When you let a professional take care of these things for you, you can avoid unnecessary expenses and high entrance fees; simply because they know what you need to avoid, and what is mandatory.
Finally, with any investment, one must have readjustments to the funds based on the way the market is moving. You may need to switch funds from debt to equity or vice versa, you may need to diversify your portfolio at a specific point, and you may need to readjust your investment period, as per your end goals. All of these things require technical know-how, which we’re certain a professional can offer in a much higher capacity!
Whether you fancy yourself an active or passive investor, you can always have control over your portfolio, even when you allow someone else to manage it.
I really like Peter Lynch. How do I become him then?
Well, there is a way.
Think of the last time you went shopping for groceries. When you walked into the grocery store with a specific list of ingredients and a dish in mind, you walked out only with those items and went on to cook a great dinner (ergo, high ROI). However, when you walked in without any list or goal, and basically, meandered through the store, you probably went home with a ton of great-sounding items, but not enough things for a cohesive dish (ergo, low ROI). This is what happens when you invest without a strategy or a deeper understanding of what you need.
A professional, such as the ones at Kristal AI, are likely to first analyze the top 10 holdings of a guru to understand what kinds of companies make up for 70-80% of their wealth. The strategy that they create is based on your needs and goals. Within 3-5 years of investments, you should be able to see great ROIs.
What if I don’t have a high disposable income? Am I not eligible to invest?
When you consult with a professional, there are high chances that the first things they’ll direct you towards are companies you may not have heard of. This isn’t because they are trying to scam you, it’s because they are offering you a curated list of investment options that suit your budget (because not everyone can buy shares in Apple or Coke in their mid-20s). This curated list goes a long way towards creating one fantastic, high ROI dish ready to serve when you’re older.
Sounds great! What else do I need to know before value investing like a Guru?
You should know that investors release information about their portfolios every quarter, and it takes around 45 days for that information to become public. Study this information like a champ because it may help you gain insights about what industry sectors are doing well, and what might go bust in the future.
For instance, if you’re seeing great performances for a certain beverage, and you know of a few other beverage companies within the same segment (that are in the initial stages of launching), perhaps those companies may be good investment options for you.
Moreover, you can use the information about these gurus’ portfolios to make readjustments to your portfolio, as and when needed. Don’t worry about the 45-day delay as it won’t impact your own portfolio greatly.
Remember that your aim is to be a value investor. You must use a buy and hold strategy, rather than one that rides the market. So, whether you are thinking of investing in smaller companies, or readjusting your portfolio to match a Guru’s, remember to think long term!
As a new investor looking for growing wealth, emulating the tried and tested strategies of a finance guru can be one of the best ways for you to reach that goal. To ensure that your portfolio matches one of your chosen Guru, you’ll need someone who is well-versed in the industry and can help you pick the right companies to invest in.
Kristal.AI’s team of professionals can help you accumulate your wealth without having to constantly worry about market factors. We’re here to do all the work – from readjusting periodically, creating curated lists of companies you should invest in, to helping you reach your long and short-term financial goals with ease!
To improve your personal finances and see success, get in touch with us!
Investing like a guru isn’t a sure-shot way to grow your wealth. Remember that all investment avenues are subject to market risk and you must be careful with your funds when investing. Read all offer documents carefully before signing your name on the dotted line, and remember to invest in different industries so that even if one goes through a rough patch, the others will thrive!
This blog article has not been reviewed by the MAS. It is prepared solely for information purposes and does not constitute an offer or solicitation for the purchase or sale of units in the funds. This does not constitute any form of investment advice and Kristal Advisors (SG) Pte Ltd does not take into account your personal investment objectives, specific investment goals, specific needs, or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and publications are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Kristal Advisors (SG) Pte Ltd.