Who would give away $50 for two $10s? No one except the Wall Street pros. That's exactly what they do when they overreact to bad news and sell the world's best companies for next to nothing.
It takes three primary characteristics to take advantage of such opportunities:
With those qualities, you can stick it to the Street just as master value investors Warren Buffett, Charlie Munger, and Bill Ruane have done for decades.
See what others don't
A value investor must be objective when determining the true value of a business, regardless of the price the market is quoting to the public.
Motley Fool Inside Value
lead analyst Philip Durell recommended GTECH Holdings
Staying when others jump
Value investors must also be confident in being contrary. American Express
Doing the time
When buying companies with a fair value greater than their current market price, value investors must also be willing to wait for the market to catch up. This can take years -- just ask the shareholders of Wal-Mart
It could also take mere months. Shareholders of Masonite International were rewarded just six months after Philip recommended the company when privately held Kohlberg Kravis Roberts bought it for a 30% premium.
Value investors must also be patient enough to keep companies on a watch list and not jump in until the price is right. The Inside Value list currently includes Fossil
Putting it all together
The best value investors use objectivity, confidence, and patience to crush the market. At Inside Value, Philip Durell endeavors to do the same for subscribers. In just one year of existence, he is beating the market by 4.3 percentage points. And greater patience brings greater returns. To see the 24 stocks Philip is recommending and the more than 20 stocks he's watching, take a 30-day free trial.
Every once in a while, the folks on Wall Street do odd things -- like offer three tens for a twenty. Be smart and take advantage. Click here to learn more.
This article was originally published on Dec. 29, 2004. It has been updated.