I’m reading two posts on how to put theory into practice from two different value investors. Here are Geoff Gannon’s thoughts on how to turn yourself from an armchair value investor into an actual value investor:
- Have skin in the game; buy individual stocks you pick yourself, rather than mutual or index funds, so you have no one to blame (or cheer) but yourself for your results
- Keep an investment diary; take ten minutes every day the markets are open and write what you are thinking, feeling, looking at, for future reference
- Keep an investment bucket list; imagine you had to put your entire net worth into 5 stocks, regardless of price, and couldn’t sell. Try seeing how your thinking is distilled when you look at companies this way, and kick poor ideas off in favor of better ideas over time
- Practice; work an absurd amount, be an expert. Read a 10-K every day. Find an area you feel especially comfortable in and focus on it
- Invest with style; your circle of competence, don’t be afraid to find it and stick to it
- Conclusion: stop reading, start working, grow your own style
As for Andrew Schneck, he recommends the same thing: do the work. You have to get your hands dirty, read some SEC filings and get used to looking at a lot of numbers from a lot of different companies.
He also recommends looking at Value Line as a tool for examining lots of companies, quickly. The more different companies you see, the more you’ll begin to recognize patterns and differences, which will ultimately help you to recognize value from lack of value.