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In this exclusive extract from his Amazon Bestseller, CEO of ADVFN Clem Chambers explains why value investing is key to stock market success.
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Over twenty years value investing will build wealth, but you will not be rich from it in a couple of years.
A lot of people that trade the markets want to get huge profits, 100% or more in a year. This is basically impossible even if it might seem on the face of it achievable.
Incisive, honest and essential, Clem Chambers’ A Beginner’s Guide to Value Investing provides a method to invest in the stock market without taking those crazy risks
You have as much chance of doubling your money every year for three years as hitting a jackpot at Vegas.
To the nearest percentage there is no chance of earning gains like 100% a year from shares and if someone does, they have been very lucky and are not responsible for their good luck. Anyone reading this who has achieved such gains should close their positions now, pile their money up on a table and count it out before putting it back into the market. It will be a good opportunity to kiss their money goodbye. Luck or ‘one way’ markets that provide such profits do not last.
Value investing is a technique that when combined with the simple basics of investment provides a basis for building up wealth, with a lot less anxiety than the other investment strategies out there.
Its sixty year history is alone a strong recommendation that value investing works and will keep on working.
Other ideas have come and gone, yet value investing keeps on going.
One of the reasons for this longevity is that value investing requires discipline and some work. It is rather boring and unflashy.
This is a benefit but for many it is a drawback. People are drawn to risky games—and the stock market is considered risky—and they like excitement and kudos. These ‘punters’ want to make quick money because they have a gambling streak.
Value investing does not satisfy the gambling urge very much as it is quite drab, rather unexciting and takes regular maintenance. Gamblers want minimal work and plenty of sensation.
Value investing is like gardening, just the sort of thing that gamblers aren’t interested in.
Consequentially value investing is never in fashion. However, because it makes money, it is never out of fashion either.
Most investors know they should be value orientated but few can resist the enticing whirligig of trading and the glamour of go-go shares.
This is understandable.
People simply can’t resist the lure of the casino either.
Why else would people pour their money away on simple games like roulette, when they have worked so very hard earning the money in the first place? It is because people love noise, thrills and flashing lights. They get hypnotised by them. Many shares in the stock market are like casino games and the city has learnt long ago that most of their potential customers don’t want sensible profits; they want the lure of riches and a gambling high.
Sadly greedy gambling kills in the stock market—or at least costs the player a bundle.
Meanwhile, diligence pays.
This is why value investing works. The market has to pay investors a good return to own boring out-of-fashion shares. Prices of unloved companies fall until they are so cheap that smart investors can’t resist buying them. At some point this unpopularity goes into reverse and those that bought in cheaply make good returns.
