Value investment

At UW library, read a book about Innovation of management. There are two excerpts written by Peter Lynch and Clews. Both of them are value investors.

How to make money in Wall Street?
"Buying 'sheep', selling 'dear' " - cited by Clews.
Similar sayings: You pay the price and get the value. - Warren Buffet

Basically, it is buying under intrisic value. This usually happene when there is a general panic in Wall Street. Based on this, contrarianism is formed. Peter Lynch said that, being contrarian is not to sell when all of the other is buying a hot stock. Instead, it is to find the stock which is under is intrisic value.

But why when all of they others are panic because of the unpromising economic fators, is it the point the stock market reaches its bottom? Why at the worst point of market situation, does the market start to reverse? How is the bottom formed?

It is all about the results of two opposite forces - bushlish buying force and bearish selling forces. When everybody is optimistic about the market condition, the buying forces are starting to exhaust. In the same time, the indivdual stocks are overvalued. The value investors have finished liquidating their positions. If nobody is buying, the stock market is falling. This is self-enchancing phenomenon - based on human nature. The stock market is accelerating to decrease. At a point the value investors think it provides a good chance, they start to buy. It's balanced at the bottom of stock market.

The question is how to decide the bottom point to buy the sheeps. How much is the gain from the bottom enough to start to sell in order to avoid the being caught. Deciding the selling point after a market has gain a specific percentage is especially important for a big fund.

Actually, all of the teaching of Warren Buffet and the other value investors, such as looking for a business which one should understand, looking for a business the managnement team has integrity, looking for a mort business etc, are about intrisic value. All in all, buying a business which has competive advantage. If the one's money is small, short term competive advantage can make a profit. But it one is like Warren who has big buying power, offcouse, he should like Warren to buy business which have long term competitve advangae. A winning culture is not easiy to establish and copy, no wonder Warren is buying a managnement team which have long term goal in their mind and enphasizing building a long term winning culture.

Technical anaysis is a techniqe also.

All in all, to be successful, one has to be outstanding. Outstand the crowd, both judgement and emotion. But how?

So principle of my investment is buying sheep and selling dear. How? Fundamental and technical. Be flexible. Be unemotional. Looking for Insider holdings and trade, looking for institution holdings. Looking for competitive advantage. Looking for management. Thinking of safe margin. Thinking for the profitability of the business.