7 Common Traits Of Billionaire Value Investors
A lot of most successful billionaire investors have the same approach to investing. Warren Buffett, CEO of Berkshire Hathaway, Mason Hawkins, founder of Southeastern Asset Management, Seth Klarman, CEO and portfolio manager of Baupost Group are just some of them. What connects them all is the value investing direction that they apply in their investment strategies. What is it that they do that makes their value investing efficient?
We’re exploring 9 most common traits of billionaire value investors that you should consider if interested in learning more on different investing strategies.
1. Billionaire Value Investors Know Markets Aren’t Always Efficient
Value investing is based on the presumption that securities aren’t properly priced and that markets aren’t efficient. Ceo of Whalen Financial in Las Vegas, Andrew Whalen explains. For instance, this inefficiency is seen when unprofitable companies are highly valued basing their return potential on hopes of future profitability, rather than securities analysis.
If you would like to learn more about value investing, you should look up the name of the father of this investing strategy – Benjamin Graham. He wrote two value investing books, “Securities Analysis” and “The Intelligent Investor”. If Warren Buffett called the latter book as the best investing book ever written, then it is definitely worth reading.
2. Billionaire Value Investors Look For Intrinsic Value
Value investors look for companies that have strong balance and are trading below their intrinsic value. Companies with little debt are also those that catch interest of value investors. But how do you know a company’s intrinsic value?
Trip Miller, founder and managing partner of Gullane Capital Partners, says that the intrinsic value of a company is calculated through fundamental analysis. The current market value is not in focus here. The companies that value investors are looking for are the ones that can grow over time, so this type of investing is not looking for fast earnings but is rather seeking companies with long-lasting, steady growth.
3. Billionaire Value Investors Seek A Margin Of Safety
The margin of safety is a concept that is tightly connected to intrinsic value, and is often associated with Klarman who wrote a book on it, called “Margin of Safety: Risk-Adverse Value Investing Strategies for the Thoughtful Investor”. Klarman explains in the book how the margin of safety works.
Investors that seek a margin of safety usually purchase securities when the market price is significantly below the intrinsic value. This way, the risk of loss is minimized.
4. Billionaire Value Investors Are Aware Of Their Circle Of Competence
A lot of billionaire value investors talk about a “circle of competence”, the subject area in which the investor has the expertise. The idea of it is that investors should buy and invest in companies they know about. If their skills are relevant to the company then investing makes sense. If it’s something you know nothing about, it might be wiser to pass and concentrate on industries you understand better. This way you are in better control of your risk.
5. Billionaire Value Investors Look For Companies With Wide Economic Moat
Value investors look for companies that have plenty of advantages that will keep their competitors at bay. Being a leader, even in a small niche, among other companies will ensure a company’s longevity. Investing in businesses that are focusing on research and development of their business are usually the ones that can bring growth in the long run.
6. Billionaire Value Investors Are Patient
What differs value investors from other investors is they don’t go for what’s in the headlines. They do their research and look for a company with a strong balance sheet that will bring long term results. They don’t let themselves get distracted by market volatility.
7. Billionaire Value Investors Buy At The Right Time
However, their patience might not be worth it if they don’t wait for the right time to buy and avoid overpaying. When you do a research on a company, plan when you should buy and then wait for the markets to retreat and take advantage of falling prices.