The most obvious question when someone wants to learn value investing is first where to learn? And though the easy answer should be, read Ben Graham’s Intelligent Investor, the newbie investor might encounter a big problem and change his path into a trader.
The reason that its such a big problem is that, Graham was not an ordinary man. He was an academic. And when the book came out, it was like any academic book. Its hard to understand. So the newbie investor would search other books until he finds how to use a technical indicator which is easy enough to understand if you know how to use a computer and know the meaning of the lines.
But this post is not about trading as a worse path. Its just that, many people get discouraged when they look for wisdom in value investing. I know, because I was there. And for a fact that there’s a lot of information out there, both correct and wrong information, about the subject of value investing, and there’s a lot of noise that the newbie investor might take to heart and bring him to financial ruin.
One way to get into these financial ruin was following a financial advisor on what to invest his money on. Financial advisors as you may all know are people who sell investments and insurance products or both at the same time to the financially illiterate. These products are designed to help people get the most out of their money into retirement (ideally). But in reality, since the financial advisors are incentivized to promote the highest paying insurance and investment products, most investors will end up losing money than making money.
It is said that financial advisors make 50% commission on the product they sell. That’s a lot of incentives to sell to people the highest paying product instead of the most advantageous product to their clients.
Another one are clubs and signal services. Those are traps, that you think you are learning how to invest. But in reality you are teaching yourself to depend on a service that brokers use to make you more active in trading. Brokers makes money when you trade often. Which makes another point of conflict of interest. Signal service (even though they say they are investing strategist) will give you a price point on which to buy and a price to take profit. This is a very far concept to the value investing principle. I never heard Warren Buffett bought a company and say, I’ll take profit when this price hits. So an investor should be careful. Warren Buffett’s stocks are still mostly the same stocks that he held when he wasn’t so rich.
Why would anyone believe these kinds of clubs? Well, because the club members are the apostles who preach the good news that money will come if you join. But behind the scenes its the same thing. In reality, these apostles are just incentivized like that of the financial advisors. They promote because they can earn money, not because they learn investing or made money investing, but from the income they would earn if you join the club. Don’t trust me? Look at their links. The link they gave you where you can visit the website or sign up is usually a suspect.
Another thing to be suspicious is the people behind it. I always get into trouble with other people saying that someone is wrong or an idea is wrong. Because I’m a very private person, I don’t have many achievements in life. But ideas usually should stand on their own. Even if the person talking is a chauffer or a president of the Philippines. What most people forget is that, having written a book does not mean you’re an investor. While someone that haven’t wrote a book, is a useless fool who knows nothing.
But then again, would I learn investing under from someone who makes money by teaching the bible or from someone who does investing in real life? Would I learn from someone who is an analyst and is employed on the top brokerage house in the country, or from someone who survived the 2007 – 2008 financial crisis investing his own money? I think the answer is pretty clear. And most people forget that fact when you see the big stadiums, the pretty charts, the jam packed seminars and the popular books and of course the screenshots of green portfolios. Its a bias of the mind.
The Intelligent Investor’s Solution
With so many traps, should then an investor just have a professional money manager handle his money? Like a mutual fund? That could be an option. But most funds can’t beat the index. Just look at the list of mutual funds in the country and how many of them beat the index? The reason is not entirely a lack of skill on the part of the fund manager. The reason for this underperformance is the fees. 1% to 2% fees on your money is huge. Together with mediocre performance and not being able to beat the index, you’re left with a money losing fund for the long term, that you keep on paying fees to continue performing badly. Even if you think you may have wins on some years and most investors cant distinguish the difference between luck and skill and bull markets.
So what is then left to us is what has always been at the beginning. Its to handle our own business the best way we can. And find the right information and the right person whom to get that information from. I would always recommend The Intelligent Investor, because I do think that its one of those books that would really give you the general idea of a concept that will take your whole lifetime to master. But if you can’t understand it yet, let me point you to a great educator at How to Invest for Beginners. He teaches investing concepts in Tagalog, which would be an easier alternative to reading an academic book. Once you are done with his paid course, try to re-read The Intelligent Investor until you understand the concepts. When that lightbulb lights up, you will find heaven.