Common Traits of Successful Value Investors

The investors who follow Value Investing strategy are attracted by numerous characteristics which are present in the stocks themselves. There are certain common traits needed by the successful investors such as discipline, a good understanding of risk and return, valuing assets and being a proactive learner. This article lays fundamental factors of success for value investors.

Value Investors Remain Discipline.

Discipline is the most vital factor as key to success in the stock market is discipline strategy. This strategy tends to differentiate investors from the individuals from the people who do it themselves. As it is the nature if stock market to behave in a way which is far away from the logical reasoning so patience and discipline are most needed in these circumstances. It is the common trait of successful investors to make their investment strategy simple and disciplined rather making it complex. Warren Buffet is said to be one of the successful value investors and it his investing strategy is to “buy good businesses at a fair price with the intention of holding them forever.” Further, a discipline strategy enables to remain cool when a market is contrary to your wishes and ensure that when making decisions. Emotions are kept aside. Apart from this, discipline strategy enables value investors to think over a longer period of time while making decisions about a particular stock, security or asset mix.

Value Investors Understand Risk and Returns very well.

A good understanding of the risk and returns whether it is explicit or implicit is vital before choosing to invest in a particular investment opportunity. One of the most important aspects of value investment is to understand the relationship between risk and return and how both of these are affected. This is one of the common traits of successful investors to understand the relationship between risk and return as it will allow them to make decisions that will best meet their financial aims and objectives. Risk and return are carried by all investments, it is the art of value investors know about these and come up with an investment decision which will minimize the risk and enhance the return on the investment. To have a good understanding of the relationship between risk and return require a good deal of stock market understanding and as risk and return both can be affected by a number of factors such as political and social environment, variations in the economies and investment markets. The most common type of value investment risk is variation on the currency prices and interest rates and variation in the inflation rates. There is certain amount risk associated with almost all investment opportunities, it is the art of investor to manage these risks. A successful value investors are always aware of these types of risk so that alternative strategy can be made to minimize these risks.


Value Investors think about Business Values.

Ability to value the business and assets is also one of the most common trait successful value investors. There is an academic debate one should not invest in the stocks if he/she is unable to value the business. The value investor in the stock market always measures both tangible and intangible aspects so that an intrinsic value can be measure before investing in any stock. Ability to value the business and assets involves a critical analysis of financial performance and it includes factors such as cash flow, revenue, intangible factors which are affecting the expected performance, asset type, financial return expectations and financial leverage. The value of a business is dependent on all of these factors and value of a business may differ from one investor to another. It may vary because of difference in the operating assumptions payment terms, deal structures, however, it is independent of a difference of valuation methods. The valuation method may differ from investor to investor depending upon their preferences but the main objective of valuation a business is to find out that the investing opportunity which they are going to adopt will fulfill their financial objectives. The most common type of valuation approaches is market value approaches, earning value approaches and asset-based approaches. No matter which valuation method you choose, the main objective is to know about the true value of a business which is based on the ability to produce wealth in the future. There is certain valuation that is used to compare the business in which you are going to invest in a business which has been recently sold so that a correct intrinsic value of the business can be determined.

Value Investors are Proactive Learners.

Having a disciplined strategy, a good understanding of risk and return and valuing business are not enough to become a successful investor but one also needs to be a proactive learner. It is the common trait of a successful value investor to always remain as a proactive learner. Rather than to adjust to variations in the market, a proactive approach emphasizes investors to make a calculation of the expected and possible variations in the market. When the change in the market is anticipated, they immediately make a strategy which will foster the change and through which they can take control of the situations. Being a proactive learner in the stock market is not an easy thing to do but a good investor always knows about the potential benefits lying in a particular strategy and they know that being a proactive learner will make them a market expert with the passage of time. As it is said by Warren Buffett that “The rich invest in time, the poor invest in money.” It also requires to make effective strategies, take responsibility for different situations, objective thinking, and a good temperament. Proactive learning also involves learning from the triumphs achieved, lessons learned from the past experiences and past mistakes. Learning from the past experiences is also vital as it is said that to become a successful investor one must make some mistakes and miscalculations as it is said by Henry Ford that “Even a mistake may turn out to be the one thing necessary to a worthwhile achievement.”