“Many times over the years I have been asked how I would approach investing. This chapter attempts to codify my beliefs (and provide some evidence for them). However, before embarking upon a journey into my investment creed, it is worthwhile asking a question that doesn’t get asked often enough – What is the aim of investing? The answer to this question drives everything that follows. I feel that Sir John Templeton put it best when he said, ‘For all long-term investors, there is only one objective – maximum total returns after taxes.’ Nothing else matters. Then the question becomes: How should we invest to deliver this objective?” —James Montier
- Tenet I: Value, value, value. Value investing is the only safety first approach I have come across. By putting the margin of safety at the heart of the process, the value approach minimizes the risk of overpaying for the hope of growth.
- Tenet II: Be contrarian. Sir John Templeton observed that ‘It is impossible to produce superior performance unless you do something different from the majority’.
- Tenet III: Be patient. Patience is integral to a value approach on many levels, from waiting for the fat pitch, to dealing with the value managers’ curse of being too early.
- Tenet IV: Be unconstrained. While pigeon-holing and labelling are fashionable, I am far from convinced that they aid investment. Surely I should be free to exploit value opportunities wherever they may occur.
- Tenet V: Don’t forecast. We have to find a better way of investing than relying upon our seriously flawed ability to soothsay.
- Tenet VI: Cycles matter. As Howard Marks puts it, we can’t predict but we can prepare. An awareness of the economic, credit and sentiment cycles can help with investment.
- Tenet VII: History matters. The four most dangerous words in investing are ‘This time is different’. A knowledge of history and context can help to avoid repeating the blunders of the past.
- Tenet VIII: Be sceptical. One of my heroes said ‘Blind faith in anything will get you killed’. Learning to question what you are told and developing critical thinking skills are vital to long-term success and survival.
- Tenet IX: Be top-down and bottom-up. One of the key lessons from the last year is that both top-down and bottom-up viewpoints matter. Neither has a monopoly on insight.
- Tenet X: Treat your clients as you would treat yourself. Surely the ultimate test of any investment is: would I be willing to make this investment with my own money?
See here for an excerpt of chapter 15 – The Tao of Investing: The Ten Tenets of My Investment Creed – from the book Value Investing: Tools and Techniques for Intelligent Investment.
Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.