Investors who are willing to develop patience and implement the following value investment strategies can reduce their portfolio risk and increase returns.
In my blog post 32 Investment Rules and Strategies To Make You a Better Investor rule #1 is “Patience is a virtue; develop and cultivate it in your investment strategies. Patience is a Biblical principle that, if applied to investing, will greatly reduce your investment mistakes and improve your investment returns.”
Value investing delivers higher rates of return over long time horizons. Most investors fail to even match market averages. This is because they don’t develop the patience and discipline to stay focused on value.
The key to value investing is to only invest when the odds are heavily in your favor. As investors, we are generally people who enjoy being active and making progress in whatever we are doing in life. There is a natural inclination for most investors to lack patience.
Value Strategies for Individual Investments
When looking for individual investments an investor who can develop patience will wait for a desired margin of safety before purchasing the asset. This means price matters and should be a key consideration when making investing decisions.
In investing, the margin of safety is the difference between the intrinsic value and current market price. Bad things happen, things go wrong; a margin of safety allows for a mistake or an unforeseen problem. If you can buy an asset for a large discount from its’ intrinsic value the risk of owning that asset is reduced.
Value Strategies for Asset Allocation
Asset allocation determines over 90% of portfolio returns. History proves that investors who use valuations to determine their asset allocation can lower their portfolio risk and improve returns!
Value investors can use market volatility to take advantage of valuations, instead of being a victim. Most investors let their emotions take over at just the wrong time. This is why many sell at market lows, and buy at market highs.
An investor who develops the virtue of patience and focuses on value will be avoiding stocks at market highs when everyone else is bullish. Then when stocks are being crushed by pessimism a value investor has the ability to snap up good values at bargain prices.
This value strategy can be implemented with a tactical asset allocation. Patience means maintaining conservative asset allocations when value opportunities are hard to find. The majority of investors forgo patience and then when bargains are available they have suffered such damage to their capital they don’t have the ability take full advantage.
Value investment strategies require an investor to develop patience. If you are unwilling to develop patience you will be a frustrated investor. These investing strategies; margin of safety, intrinsic value, and tactical asset allocation require patience.
Investors who are willing to develop patience, and wait for the odds to be heavily in their favor, can reap the benefits of these value strategies.
Related Reading: Mr. Market and the Intelligent Investor