History's greatest investors have usually favored good, solid companies over high-risk/high-reward plays, explains John Reese, editor of Validea and an expert on the investment strategies of the market’s market legendary investors.
What Warren Buffett, John Neff, Benjamin Graham, and other highly successful investors have all realized is that good investing involves discipline, long-term thinking, and patience.
Incorporating all of those aspects, we buy stocks based on the cold, hard numbers on their balance sheets and income statements, not eye-catching headlines or our own personal emotions.
We use strategies that are tried and true, not flavor of the month approaches that might seem wonderful on the surface but which are untested.
Our system is dull and mechanical -- and that's just the way we like it. That doesn't mean we won't from time to time purchase stocks in more exciting parts of the market.
But they are almost never not the sort of flashy, exciting tech stocks everyone's talking about, because those are usually far too pricey to pass muster with our models.
For example, we are adding Western Digital Corporation (WDC) to the portfolio. At one time, Western was the type of stock that generated buzz at cocktail parties or the water cooler.
But today, it is far from that. It's an "old tech" firm, and investors don't like "old." They much prefer shiny and new.
Because of that, the hard drive maker is cheap -- dirt cheap. It trades for just 9 times earnings, 0.8 times sales, and 1.1 times book value.
Sure, it's not going to product gangbusters growth, but it has been hanging in there as it adapts to a changing landscape -- and it pays a 4.5% dividend. Sexy? No. A bargain? Yes.
Investing isn't about predicting what stocks are going to go up tomorrow or next week or next month. It's about figuring out what something is worth, and paying less for it.
To do that, you need to look at balance sheets and fundamentals and income statements. It's decidedly unexciting work, but it produces results.
By John Reese, Editor of Validea
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