8 Value Investing Lessons From Beating The S&P 500 Return So Far

by Chris Susanto 

7 October 2020

There are many value investing lessons that I have learned throughout these past five, six years.

For today, I thought to share with you eight of the value investing lessons and reflections I have had recently.

I hope it will add some value.

1. The Market is Unpredictable

value investing lessons

I have made zero money from predicting where the stock market is heading.

It is too hard to predict the market. So what should we do instead? Make intelligent bets on the business direction over the longer term.

All of my gains so far are from understanding the business, management, and valuation well enough – to decrease my probability of being wrong. This means that we should not take excessive risk by gambling on the market movement for the next week or next month.

In my view, betting on the market’s direction in the short term is a fool’s errand. A lot of money has been lost that way.

But in the long-term (>20 years), my view is that it is likely to go up.

Why do a lot of people still like to bet on the market short term movements when it is so hard to have a high probability of being right? The answer is greed and wanting to get rich quick.

It’s hard to get rich quick, but it is easy to get rich slow.

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2. What Matters is We Buy The Stock at A Comfortable Price

I have always believed that we need to always do things we are comfortable doing.

Stock investing is the same. We should only buy a company when we are comfortable with the price.

There is no rush to “must buy” the company today. The company will still be around next month and even next year.

Just make sure that we bought the company stock at a price we are comfortable, we will sleep better at night that way.

3. Buying Great Companies Allow Us to Sleep Better At Night

If we buy great companies, they tend to disappoint us lesser. Somehow, they just do better things, they are more innovative.

Great companies usually have a stronger competitive advantage too, which tends to allow them to earn higher returns on invested capital over a longer period.

Great companies tend to also have longer growth runway.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” – Warren Buffett.

Warren Buffett’s ability has always been to pick great companies that are undervalued, and he holds it for the long term.

Just like Warren Buffet’s recent pick on Apple is a perfect example of him buying a great company. Apple has a great loyal customer base, strong brnading, sticky eco-system and a pretty good CEO.

What is the one good thing about buying great companies at a reasonable price? IF we have made the right buying decision, sometimes the most important thing to do is to do nothing.

Also read: Is SIA Shares Worth Buying? Here Are My Thoughts (August 2020)

4. But Buying So-So Companies That Turns Into Good Then Great Companies Can Be Super Profitable Too

As both a value and growth investor, I make money both ways.

I love buying great companies.

Sometimes, I also buy a so-so company at a ridiculously cheap price.

What is even better if that so-so company becomes a good company and then a great company. That, in my view, is where a lot of multi-baggers come from.

Think of Apple before Steve Jobs came back the second time. That was the start of the turning point of Apple from a good to a great company.

5. Realizing and Admitting Mistake Fast is Important

We will never be right 100% of the time in investing.

But we make sure we have the proper process, and that process allows us to beat the market consistently.

That process requires us to review our holdings and admit mistakes when we realized we are making one.

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.” – Warren Buffett

The above quote sums it up perfectly.

Because if we are able to reallocate the cash left from our mistake to winning investment, that will be a much better use of the cash than to leave it in, say, a permanent value trap/losing investment.

6. Even The Great Value Investors Uses Options Wisely

Recently, Michael Burry, the famous big short investor, has 36% of his fund capital invested in Alphabet call options.

Call options are, without a doubt, dangerous.

It is super easy to lose 100% in buying call options.

But it is a strategy I have been carefully studying and applying this year.

So in investing, always strive to continually improve ourselves. There is always a new thing to learn and improve while staying rooted in the unchanging philosophies and fundamentals.

Also read: Here Are My Five Key Takeaway From Tesla 2020 Battery Day

7. Patience is The Most Important of All

value investing lessons

“The big money is not in the buying and selling. But in the waiting.” – Charlie Munger

Charlie, a wise investor and the partner of Warren Buffett sums it best.

Patience is key.

Patience in buying at the right price in the right company.

Patience in holding.

And patience in selling at the right price.

Meditation is small practice that I do to help me be more aware if I am making decisions based on emotional reasons or not.

It also helps me to be more patient.

8. Enjoy The Process

value investing lessons

Above all, enjoy the journey.

Enjoy the process of investing.

The returns are just a way to keep track of whether we have been doing the right thing or not.

Enjoy the process of learning, reading, and being right or learning from our mistakes.

That is how we become a better investor over time.

Also read:Kodak Stock is Up Over 1,400% in Two Days. Does It Make Sense?

In Conclusion

Since I started investing on 1 March 2015 (using XIRR calculation), my annualized return as of end Q3 2020 is 22.09% vs S&P 500 return of 11.29%.

Most of the returns so far in recent quarter came from my Facebook position which I am up around 50% and my GameStop position which I am up around 160%.

My two main bets have not paid off yet, which is in Carnival Cruises and Pfizer, mainly long via long-term call options.

So if things go well, I think this year will be another good year for my portfolio but even if it is not, I learned so many things this year.

And I am sure over time, I am going to become an even better investor as I continue to learn and improve.

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The information provided is for educational and general information purposes only and is not intended to be personalized investment or financial advice. We make no promises as to the accuracy or usefulness of the information we present.

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I am/we are long on Facebook, GameStop, Carnival Cruise, and Pfizer.

Chris Lee Susanto

Chris Lee Susanto

Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.

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