Learning Proper Investment Strategies through "<한국형 가치투자> (Korean Value Investment)"

 

 

Kim Nam-guk and Choi Joon-cheol are prominent value investors in Korea, serving as co-CEOs of VIP Asset Management. They have been interested in value investing since their university days and have been promoting value investing in Korea. Initially, they authored books such as <Korean Value Investment Strategy> and <V-Chart Made Easy for Value Investing>. After a long time, they have now introduced us to value investing once again with their new book, <Korean Value Investment>.

 

It has been 1 year and 8 months since I started posting stock-related content on the other blog. However, the results were not as expected because I wandered without studying with clear criteria. This book helped me to gather myself and move in the right direction.

 

<Korean Value Investment> provides a ray of hope for novice investors who are wondering, 'Isn't value investing unsuitable for the Korean market?'. By reading this book, I could clearly see what I lacked. From now on, I will not be swayed by daily stock price fluctuations, but will analyze the value of companies and invest from a long-term perspective. This book will be an important guide on my future investment journey.

What is Value Investing?

Value investing means finding and buying stocks that are undervalued compared to the company's current or future value, and selling them when the stock price converges to the company's value. Value investors believe that the market is inefficient in the short term but efficient in the long term.

 

Value investing is like finding a horse in a race whose odds and dividends are mismatched. A horse with a 50% win rate should have a 2x dividend. Value investing seeks a horse with a 50% win rate but a 3x or higher dividend.

 

Value investors are contrarians. They sell when everyone is optimistic and buy when everyone is in fear. It is difficult to move contrary to the surrounding atmosphere, which makes value investing challenging.

How to Do Value Investing?

Value investing was established by two prominent investors, Benjamin Graham and Warren Buffett. Benjamin Graham emphasized thoroughly analyzing companies and buying stocks only when the current value is undervalued compared to the analyzed value. He called this a margin of safety. Warren Buffett, in addition to the margin of safety, talked about the insight to see a company's future growth potential. Margin of safety and growth are the core of value investing.

 

Value investors maintain a humble attitude towards macroeconomics. They believe it is impossible to predict the future. Instead of analyzing macroeconomics, they focus on analyzing companies. Charlie Munger emphasized that microeconomics (companies) is the most important, stating that analyzing companies is what we do, and macroeconomics is a variable we accept​. Once a company is analyzed and the price is deemed appropriate, it doesn't matter if the stock price drops due to macroeconomic shocks. In the long run, an efficient market will find the right price. Value investors view the market with long-term optimism.

 

On the other hand, when analyzing stocks, they use skepticism as a weapon instead of optimism. Stocks that have not been properly filtered through skepticism are difficult to endure when bad news strikes and stock price volatility is high. Volatility is something that must be experienced in stock investing, and profits are the reward for enduring volatility. What enables this endurance is sufficient study and principle-based investment​.

To succeed in investing, you don't need immense intelligence, extraordinary insight, or insider information.
What you need is the ability to establish sound decision-making principles and to prevent emotions from ruining those principles.

 

This book also introduces how to choose good companies, find undervalued stocks, and more. It is a great help in deeply understanding value investing and establishing an investment philosophy, so I recommend it to anyone interested.