(“Investing with a Value Philosophy” is part of Developing a Core Set of Beliefs series.)
“Develop a core set of beliefs that guide your decision making and you hone your analysis skills until you are an expert. That’s what developing a core set of investing beliefs means and that’s what YHB Wealth helps you do.”
Over the last 12-18 months, the value style of investing has underperformed the growth style, but on a longer term basis, there are numerous studies that have shown value performs best, and with less risk. Why do you think that is the case?
Well, if you think about it from a common sense perspective, if you buy something that’s undervalued (notice I didn’t say cheap – because in most people’s minds, cheap = poor quality, and we want to buy quality that is temporarily underpriced) so, if you buy something that’s undervalued, it has a better chance of becoming fully valued, or even over valued than if you bought something that is already over-priced. You wouldn’t buy something in a store just because it’s been marked up 30%. You would wait for it to go on sale, and then you’d buy. That’s how most people approach just about everything they buy in life – except equites or funds. Many people feel more comfortable buying these items after they’ve already gone up a lot in price.
Psychologists know why this happens. It’s because very few people do much if any research before deciding to buy, and there is comfort in buying with everyone else. Those of you who are a little bit older – like me – probably remember Mutual of Omaha’s Wild Kingdom. One of the images they showed in their opening credits was a herd of gazelle running across the African savannah with a lion in pursuit. Well, as you might guess, the lion grabs one of the animals that had separated from the herd. This image is reflective of our instinctive feeling that we are more comfortable as “part of the herd” where in our mind it’s more likely to be safe.
But by looking for quality and value in those areas of the investing world that are “on sale”, in our opinion, you have a better chance of success than by buying the over-priced assets the rest of the herd is chasing. One thing that is for sure, you won’t always be right in your investment selection. And when you’re wrong in buying quality assets on sale, it’s likely they will fall less than if you’re wrong in buying the already high flyers, hoping they will soar even higher.
The YHB Wealth Philosophy
Disciplined investing focused on the long term. No one can predict exactly what the future holds, and we’ll never pretend to have a crystal ball. While we can’t eliminate risk, we do our best to balance smart investing while maximizing returns and minimizing taxes.
Our philosophy is simple, we combine comprehensive financial planning with tax-efficient investing so you can invest and grow confidently. We take a holistic approach to your investments, income, taxes, philanthropy, and estate planning to create a strategic plan that works for you, your family or your business.
About the Author
Randy has more than 15 years of experience managing financial assets for individuals, retirement plans and businesses. Randy joined YHB | Wealth Advisors in January of 2018 and serves as the Director of Wealth Management. Prior to entering the professional wealth management field, he enjoyed building entrepreneurial business ventures from start-up to eventual sale and providing accounting services for public and private firms.