Is Value Investing the Best Strategy?

April 17, 2013

in Investing

By Cayden Chang (guest contributor)

Beginners (and even veterans) who are looking at investing can be easily bewildered by the large number of strategies and assets out there, and unsure about how to proceed. In this article we interview Cayden Chang, a Value Investing trainer, cancer survivor and speaker at the National Achievers Congress 2013, on his journey from being broke to becoming a millionaire via Value Investing, and why he thinks it is the best investing strategy.

Could you share your story of how you began your Value Investing journey and built your expertise to the point where you can now teach it?

It started around 2003 when I met an ex-subordinate who was into Value Investing and both of us immediately clicked, as I was also fascinated with how Warren Buffett and other successful value investors could beat the market and make money consistently.

Initially, I built my knowledge via discussing, reading and then some trial-and-error investing into Singapore stocks. The experience and wisdom were built slowly across the years both from making the right decisions and from making mistakes.

Through this ex-subordinate, I met my company’s current Master Trainer, Mr. Liu Feng, who made his first million through Value Investing and concurrently my Programme Director, Mr. Sean Seah. It was late 2008 then and we had several discussions on how we can pull together our knowledge and experience so that we could teach them.

As we are dealing with teaching people how to invest, we have to focus on a methodology that has been proven across decades. Value Investing was the best choice as it has been taught by Benjamin Graham since the 1920s at Columbia University. It took us about two years of intensive research and putting together our experience, and subsequently we launched the Value Investing Programme (VIP) in mid-2010.

How would you define the difference between Value Investing and other styles of investing?

Value Investing is the only proven stock investing methodology since the 1920s which focuses on looking at stocks as a business rather than a moving stock price. It’s also the only investing methodology where investors are required to know how much the business is worth (i.e. Intrinsic Value) before they invest, coupled with an inclusion of a Margin of Safety during the calculation of the intrinsic value to take care of any possible error in calculation. As such, it’s a highly conservative method.

Most people out there think that investing is looking at past trends of stock prices, thenapplying various forms of technical analysis to speculate on future price movements. Unfortunately, it’s as good as speculating on future lottery results.

People looking to generate wealth from the markets are faced with a wide range of options that include trading and investing in stocks, options, futures and foreign exchange. Which of them do you think would be more suitable for a beginning trader and why?

Stay away from any form of trading either in stocks, options, futures, forex, etc. Trading is equivalent to speculation or gambling. No one becomes wealthy just by gambling. My suggestion to beginners:invest, don’t speculate. Warren Buffett would have suggested the same thing.

What are the biggest obstacles you’ve seen people facing that prevent them from getting better at Value Investing?

Impatience. Most of the people expect results today, tomorrow, next month, quick, quick and quicker. Unfortunately or fortunately, after you buy some stocks, it means that you own a portion of the company. The company will take time to grow. The stock price can’t possibly fly up the next second or the next minute. Some things just take time and investing is just one of them. To borrow a quote from Warren Buffett: “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

How difficult is it to become a good Value Investor where you reach a point when you can invest profitably on a regular basis? How much time and effort does it take to get there?

It all depends on how well the investors know the company and the time and effort that they put in. If I assume that an investor has been working in let’s say ‘ABC Ltd’ and he knows inside out how the company generates income, it may take this person just a day or so to get started. Once the investor invests in a good undervalued company, the company will start paying the investor passive income either in the form of dividends and/or capital appreciation. That’s when the investment will start being profitable.

Other than stocks, do you also invest in properties and gold? How do those assets fit into your Value Investing framework?

I don’t invest in gold as gold is a non-productive asset, which means that a kilogram of gold will still be one kilogram twenty years later. However, a business is different as it can grow across time. As for properties, I currently co-own two in US. I invested more for the learning experience. Having said that, one can apply some Value Investing principles into property investment: Only invest in things you can understand, buy good quality properties and at an undervalue price.

What are the most important lessons you’ve learnt about living a happy, successful and meaningful life?

The most important lesson is really to spend your life with those you love and care about the most. I am a cancer survivor and when I was lying on my deathbed, I never thought about how much money I need and how much more money I wanted. What I wanted was to see my wife and my children by my side. That’s all I need.

But most of us spend so much time pursuing money that we forget what really matters. We will never get enough of money. If you are reading this article now, do spend a moment and ask yourself this question: “If you only have sufficient time to do three things in your lifetime, what will those three things be?”

 

Cayden Chang will be going in depth on the Value Investing strategies he has used to build his wealth at the National Achievers Congress 2013.

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