The confused "Value Investor's" transition from Value, to GARP, to Growth Investing...

This post is stand alone.

For those who have the time to read a century of comments to get the context and perspective, you may want to read this old post: Here's a question to Value Investors.

When to buy

When do Value Investors buy?

They buy when they can find a stock that is selling below its "fair value".

There are quite a few metrics to use, but fair to say these "fair value" metrics can be "calculated" from published quarterly or annual statements.

Teaching or learning these metrics is easy. There are formulas, excel file templates to fill-in, numbers to crunch.

All very black and white stuffs.



When to sell?

When the reason you bought was because there was a "discount" to fair value, then the logical "catalyst" to sell is when that "discount" is no longer present.

That's what the pros do.

After the sale, they go hunting for other stocks that are selling below fair value.

Buy, sell, rinse, and repeat.

If they can't find stocks selling below fair value, they don't bite.



Retail Value Investor don't have the same playbook

The competent ones do buy at discount to fair value.

But when the stock price has risen to fair value, that's where retail value investors deviate from the pros...

Nope, can't sell.

What if after selling the price goes higher?

Now these retail value investors have transition into Peter Lynch's Growth at Reasonable Price (GARP).

And when the price has soars to more than 2 standard deviations from fair value, with P/E multiples that will make any true blue Value Investor puke, now the same retail value investor will morph into a Growth Investor like Philip Fisher.

No worries!

See? I made a mistake with my "fair value" calculations. The stratospheric price today is the new "fair value". So there's lots of room for price to go much up before everything is overvalued!

What?

Am I making it up as I go along?

No way! Look, I'm a LOOOOONG term investor OK?



When shit hits the fan

Its not so bad if one transitions into GARP or Growth Investing from a Value Investing mindset,

All of the above entry methods have their own exit strategies.

But if we morphed into a long term buy-and-hold strategy mid way, that's similar to the joke traders use to mock themselves - letting a trade become a long term investment - you know it usually does not end well...

Where are the Retail Growth Investors?

In my previous post, I wrote in the comments section that most retail investors began their journey as a Trader, then as a Value Investor, moving on to Dividend Investing, and finally capitulating towards Low Cost Passive Indexing when all things fail...

What about Growth Investing?

Ah! 

That was deliberate.

Why?

Because most retail traders and investors behave like Growth Investors - no matter what they call themselves.


Verification 1: When you made a trade to buy (long), and/or you invest in something, were you expecting the price to go up higher?


Verification 2: When equities prices were low in 2009 and end 2011, did you do most of your buying then? Or looking at your entry prices, most of them were bought near intermediate highs?


Verification 3: How many of you waited for the dip to scale into your position (let the price come to you)? You chased the market didn't you?



So tell me, how are you not a Growth Investor by default?








P.S.  For those who are not familiar with Growth Investing.

The father of Growth Investing is Thomas Rowe Price, Jr.

Most retail investors are more familiar with Philip Fisher and his book "Common Stocks And Uncommon Profits".

This post is a parody.

Although most of us act like "Growth Investors", there is a reason why most retail traders and retail investors lose money.

And for those who like to do reflections and 2nd level thinking, ask yourselves why there are so few seminars/courses on Growth Investing?

If you think you have the answer, buy me kopi and we can exchange our thoughts over drinks. Wink.

Most Retail "Investors" Are Failed Traders

Need I say more?


You know; I know.

Everyone knows.