5 Signs of a Fake Value Investor

Last year, I reported back from the "Woodstock for Capitalists," Warren Buffett's Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) conference in Omaha, Nebraska. And just last week I visited what could be considered the capitalist equivalent of Jerry Garcia's childhood home.

Columbia University in New York City is where Buffett went to study at the feet of his master, Ben Graham. So the annual Columbia Investment Management Association (CIMA) conference is a hotbed of value investing chatter. This year's conference attracted the likes of Marty Whitman of Third Avenue, David Dreman of Dreman Value, and Will Browne of Tweedy, Browne.

Listening to the speakers and attendees, I was struck by five lessons we should keep in mind if we aspire to be true value investors like Graham, David Dodd, and Buffett, rather than the mere fakers who think the "value investor" label sounds good.

Sign No. 1: Real-time wasting
Fellow Fool Eric Bleeker and I watched with great curiosity as one attendee spent an entire session staring intently as his portfolio in Yahoo! Finance continuously updated. It was a good reminder that watching your financial clothes spin in the dryer only serves to reinforce short-term thinking and procrastination from doing something value creating.

Sign No. 2: Not knowing what you're not knowing
The guy above was clearly not paying much attention to the speakers. Neither was the second guy who asked David Dreman how to value financials (a few minutes after the first guy). To both questioners, Dreman responded that there's no good way to get a reading on financials (think Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , and JPMorgan (NYSE: JPM  ) ), largely because of the complexities of the derivatives they employ.

Two takeaways: 1) Pay attention, and 2) Know what you don't know.

Sign No. 3: Ignoring expenses
If you're trying to spot the true value investors at a value conference break time, look for the folks in cheap, ill-fitting suits stuffing muffins in their pants. A Washington Post article on The Millionaire Next Door author Thomas J. Stanley notes that:

  • 86% of all luxury vehicles are driven by people who are not millionaires.
  • $16 is what most millionaires pay for a haircut (including tip)

Becoming rich is not only about finding the next big 10-bagger, but also about living below your means.

Sign No. 4: Dabbling
When asked about currency impacts for U.S.-based investors, Marty Whitman noted that he doesn't spend much time thinking about relative currency movements, largely because he doesn't have as good an understanding of other cultures as he does the U.S. and Canada.

It's something to keep in mind as you debate whether to pick individual stocks or just index the foreign portion of your portfolio. If you don't understand the different operating dynamics of Petroleo Brasileiro (NYSE: PBR  ) vs. PetroChina, why not just buy the Vanguard Emerging Markets Stock ETF (NYSE: VWO  ) , which holds both? Leave the guesswork to the fakers.

Sign No. 5: Not shutting up
One audience made this lesson clear. We were all ostensibly there to learn from masters in the investing field. Yet, this guy's two questions were more about himself than the expert he was addressing. When you talk just to hear yourself talk, you're in a one-person classroom with a terrible teacher.

On that note, tell me your favorite value investing lessons and pet peeves in the comment section below.

Anand Chokkavelu owns shares of Berkshire Hathaway, Citigroup, and the Vanguard Emerging Markets Stock ETF. He neither confirms nor denies checking his Yahoo! portfolio while writing this piece. Berkshire Hathaway is a Motley Fool Inside Value and Motley Fool Stock Advisor recommendation. Petroleo Brasileiro is a Motley Fool Income Investor selection. The Fool owns shares of Berkshire Hathaway and Vanguard Emerging Markets Stock ETF and has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 08, 2010, at 12:07 PM, SweetMircha wrote:

    I enjoyed reading Sign No. 3. I prefer to live within & below my means. My stock portfolio is within & my vehicle choice marginally below.

  • Report this Comment On March 08, 2010, at 12:23 PM, SweetMircha wrote:

    My comment went AWOL. I had said that I'd enjoyed Sign No. 3's mention of cars & haircuts. I guess I fit in with that representation by living within & gently beneath my means.

  • Report this Comment On March 08, 2010, at 1:38 PM, mrwizard555 wrote:

    knowing what you don't know is excellent. finding out how to learn what you don't know is better. retaining the learning is best.

  • Report this Comment On March 08, 2010, at 3:45 PM, TMFEditorsDesk wrote:

    @mrwizard555,

    Any tips on the second one?

    -Anand (TMFBomb)

  • Report this Comment On March 08, 2010, at 7:40 PM, Dobbes wrote:

    The book mentioned in number 3 is one of my all-time favorites.

    I was standing completely puzzled in front of the personal finance section, and a stranger took notice. He pulled from the shelf The Millionaire Next Door and The Intelligent Asset Allocator. Both got me started in personal finance and investing and I am incredibly grateful someone nudged me in the right direction.

    I can't imagine what would've happened if I'd picked up You Can Get Rich in Real Estate! or one of the other books on the shelf.

  • Report this Comment On March 09, 2010, at 12:04 AM, esxokm wrote:

    Great article.

    I will say one thing about living below your means. If you are rich, I think it behooves you not to worry so much about cutting coupons and paying more than $16 for a haircut. In fact, the whole point of having money is so you don't have the pressures of trying to get every little item for less than fair value.

    Paying $35 for a haircut is fine if you have over a million bucks in the bank and income of several thousand dollars a month just from investments. What you don't want to do is buy large parcels of land in affluent sections of town, buy more than one car, etc. You can live, and enjoy life; just make sure it doesn't cost you too much more than the income you earn from your investments.

  • Report this Comment On March 09, 2010, at 4:51 AM, ryanalexanderson wrote:

    > In fact, the whole point of having money is so you don't have the pressures of trying to get every little item for less than fair value...Paying $35 for a haircut is fine

    I'm guessing true value investors are not thinking about their net balance or affordability when going for the cheaper haircut. Instead, they experience an almost philosophical enjoyment at performing an efficient transaction.

    A cheap-but-good haircut, cheap-but-good bottle of wine, and - best of all - a cheap-out-of-favour-boring-stock is a tangible proof of your own common sense which you can enjoy.

    Not every expensive car, house, and bottle of wine are expressions of low self-esteem, but many are indeed symbols that you have overpaid for a brand. A brand that is designed to make you feel better about yourself.

    Value investors celebrate the fact that they don't need this service!

  • Report this Comment On March 09, 2010, at 6:54 AM, Pr0metheus wrote:

    My biggest pet peeve would be short-sellers. They work with borrowed assets and bet on negative outcomes. That's not nice at all. :(

  • Report this Comment On March 10, 2010, at 8:14 PM, rovobo wrote:

    Is a 50,000 dollar Lexus SUV,twice as good an investment as a25,000 dollar Ford Edge. Only if you want to say hey look at me I'm better than you.

Add your comment.

DocumentId: 1130168, ~/Articles/ArticleHandler.aspx, 4/19/2014 2:03:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement