Real value investors don't check their porfolios every few minutes...
Last year, I reported back from the "Woodstock for Capitalists," Warren Buffett's Berkshire Hathaway conference in Omaha, Nebraska. And just last week I visited what could be considered the capitalist equivalent of Jerry Garcia's childhood home.
Columbia University in New York City is where Buffett went to study at the feet of his master, Ben Graham. So the annual Columbia Investment Management Association (CIMA) conference is a hotbed of value investing chatter. This year's conference attracted the likes of successful US investors Marty Whitman of Third Avenue, David Dreman of Dreman Value, and Will Browne of Tweedy, Browne.
Listening to the speakers and attendees, I was struck by five lessons we should keep in mind if we aspire to be true value investors like Graham, David Dodd, and Buffett, rather than the mere fakers who think the "value investor" label sounds good.
Sign No. 1: Real-time wasting
Fellow Fool Eric Bleeker and I watched with great curiosity as one attendee spent an entire session staring intently as his portfolio in Yahoo! Finance continuously updated.
It was a good reminder that watching your financial clothes spin in the dryer only serves to reinforce short-term thinking and procrastination from doing something value creating.
Sign No. 2: Not knowing what you're not knowing
The guy above was clearly not paying much attention to the speakers. Neither was the second guy who asked David Dreman how to value financials (a few minutes after the first guy). To both questioners, Dreman responded that there's no good way to get a reading on financials (think Barclays (LSE: BARC) and Royal Bank of Scotland (LSE: RBS)), largely because of the complexities of the derivatives they employ.
Two takeaways: i) Pay attention, and ii) Know what you don't know.
Sign No. 3: Ignoring expenses
If you're trying to spot the true value investors at a value conference break time, look for the folks in cheap, ill-fitting suits stuffing muffins in their trousers. A Washington Post article on The Millionaire Next Door author Thomas J. Stanley notes that:
- 86% of all luxury vehicles are driven by people who are not millionaires.
- Around £10 is what most millionaires pay for a haircut (including tip)
Becoming rich is not only about finding the next big 10-bagger, but also about living below your financial means.
Sign No. 4: Dabbling
When asked about currency impacts for U.S.-based investors, Marty Whitman noted that he doesn't spend much time thinking about relative currency movements, largely because he doesn't have as good an understanding of other cultures.
The same could be said about us here in the UK. If you worry too much about whether sterling will weaken further against the dollar, or strengthen against the euro, you're missing the wood for the trees.
If you want to speculate on foreign currencies, your best bet is to get a job in an investment bank. Otherwise, stick to what you know and leave the currency speculation to others.
Sign No. 5: Not shutting up
One audience made this lesson clear. We were all ostensibly there to learn from masters in the investing field. Yet, this guy's two questions were more about himself than the expert he was addressing. When you talk just to hear yourself talk, you're in a one-person classroom with a terrible teacher.
The lessons are obvious. Use your valuable time wisely. Stop looking at minute-by-minute share price movements and instead, search for great companies trading at reasonable prices. Once found, all you have to do is wait.
Tell us your favourite value investing lessons and pet peeves in the comment section below.
More on the economy and the markets:
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> A version of this article, written by Anand Chokkavelu, was originally published on Fool.com. It has been updated by Bruce Jackson, who has an interest in Berkshire Hathaway.
