Do You Have The Courage And Conviction To Achieve Stock Market Success?

Time and time again, the academics and practitioners pretty much prove that value investing works better than just about any other approach to investing in the markets.

Best of all, as Walter Schloss pointed out, it is pretty easy for most investors to learn and implement. It doesn't take a high powered computer, advanced math degrees or high-speed order capability.

Prospective investors need a calculator and a decent knowledge of accounting and corporate valuation to succeed. Most of the skills needed are contained in Marty Whitman and Benjamin Graham's books, but readers will want to always be working to improve their knowledge and skills -- the basics can be learned in a relatively short period of time.

So Why Doesn't Everyone Do It?

Seth Klarman, one of the most successful value investors of all time, summed it up when he said “Value investing requires a great deal of hard work, unusually strict discipline, and a long-term investment horizon. Few are willing and able to devote sufficient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.”

Key point: The basics are not extraordinarily hard to learn, but they are extraordinarily hard to put into practice.

Almost everything seen on TV or read in the financial media is focused on short-term success in trading stocks. The bookshelves of the investing section of book stores are full of swing trading, day trading and other short-term oriented methods to making money in the stock market.

There is an almost occasion-like atmosphere to the stock market as everyone looks to catch the move in the red-hot stocks and totally ignore any concept of valuation. People take the lead from price movement and not price in relation to corporate value, and this hurts the results they achieve in their investing efforts.

Experienced, successful investors will tell you there is more to this game than just trading the lines on a chart in search of patterns that lead to profits. Real investing takes an enormous amount of searching for safe and cheap stocks and doing the homework to understand the business and determine the real value of the company. Most of the time, investors will take a pass on nine out of 10 investments researched for one reason or another, often finding that what is cheap is not safe and what is safe is not cheap.

Many Individual Investors Are Also Doomed By The Desire To Own The Hot Popular Stocks

As Warren Buffett once said, you pay a high price for a cheery consensus on Wall Street. What's popular and exciting is rarely ever cheap. While the hot stocks like Apple (NASDAQ: AAPL), Google (NASDAQ: GOOGL) and Netflix (NASDAQ: NFLX) are easy to own because of the herd instinct and constant media reinforcement, real value stocks can be more difficult to own. It can get a bit lonely owning little banks, mining companies, small REITs no one's ever heard of and dirty energy stocks that produce traditional carbon-based products when the rest of the world is chasing electric cars and streaming video.

Value investors are forever out of step with their friends and neighbors, and that can be a bit uncomfortable around the water cooler. Even more uncomfortable is holding cash or selling into a strong market, but that has been proven to be exactly the right thing to do.

Then There Is The Time Factor

Value investors have a time frame that is many multiples of most investors. It takes a great degree of conviction, patience and discipline to own stocks for four or five years (or longer), but that's how the real money is made when investing in individual stocks. Frenetic trading in and out of stocks is fantastic for a broker, but not that productive for the individual in most cases.

The real path to stock market success is buying assets and corporations when they are on sale and holding them until they come back into favor and selling them for many times what you originally paid. Adding to positions that are falling in price takes a great deal of conviction as well, but as long as the valuation calculation holds up, it is the right thing to do.

The principles and techniques of value investing are not all that hard to learn, but the patience and discipline required to put them into practice are much harder for most investors.