As a Value Investor, my investment strategy is as follows: To invest in exceptional businesses that its share price is trading at a discount to its intrinsic value. Characteristic of an exceptional business includes strong competitive advantage, little or no debt, track record of high return on equity and positive cash flows, and its intrinsic value is forecast to rise in the future.
With this in mind, I am going assess this strategy with my first 4 trades (when I didn't have a defined strategy)
My first trade was to buy a well known retailer. It is a good business, making consistent high return on equity, low debt, and I believe it has a competitive advantage from its network of stores and the ability to drive cost lower than its competitors. It fits most of my current investment strategy, except one... the price I paid was too high. My entry price was almost equivalent to its Intrinsic Value 18 months in the future. The share price did went up in the short run but thereafter, it drop significantly and was going sideways.
Second trade was a technology company that provides medical software. This trade was executed a month later from my first trade which was still in positive gains. Why did I buy it? I got excited about buying shares and want to buy more. "I was told" that the company has big plans in the future. However, the company is not an exceptional business, in fact, it was the total opposite. The company has made numerous acquisitions and had paid too much, resulting in significant amount of Goodwill in their financials. Not surprisingly, that didn't go too well either.
Two bad trades with losses got me worried and cautious. Hence, I started to keep up-to-date with the latest market news, share prices movement. I have also started reading investment books and listen to comments from various market experts.
Eight months later, I executed my third trade buying a well diversified miner. I bought it at a low price (when Greece debt crisis intensify and riots were reported on the streets). That was my first profit and the key lesson I learned is patience. There will always be buying opportunities as long as you are willing to wait.
Fourth trade was an engineering services company, and a turning point for me. By then, I have developed my own model to calculate intrinsic value and I have read both analyst reports and the annual report before making the investment. Although it was trading at all time high, my analysis indicates that its share price is still trading below its intrinsic and it ticked all the boxes of my investment strategy. To me, this trade is executed based on my own analysis which is an informed decision. Currently, I am sitting on 20% return on investment.
Looking back, the first four trades taught me alot about Investments, and I hope you it will be a good reminder for you.. or at least a laugh
PS: Roger Montgomery's book Value.able is instrumental to my investment strategy.
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