It’s no secret that investing can be overwhelming. It all starts out fine, you’re wading your way in, and it’s pretty easy. You think, ‘this is no big deal! I’ve got this.” Until one day you reach that one big step… and all of a sudden you’ve plunged into the deep end, you can feel yourself falling and the more you try to read and learn, the deeper you seem to fall. No matter how hard you struggle, you just don’t feel like you’re getting anywhere.
This is exactly where most investors quit. They defer responsibility or just buy and Hope it all works out. But as you already know… Hope is not an investing strategy (at least not a good one…)
Side note: If you haven’t experienced this yet, you may still be wading in the shallow end my friend…
The truth is, there’s a massive, almost unlimited ocean of information out there, add in the volatile markets & a multitude of investment options… and navigating the investing world can feel akin to navigating uncharted waters in a storm! (and if you’re like me… it’s feels like you’re in a row boat while everyone else is in yacht! And are those water wings is see?)
Yet, buried within this seeming chaos is a tired and true method of sailing these seas. A way to sail to a sunny paradise and avoid the storm.
This is the promise of Value Investing. (too many sea metaphors?)
Value Investing, (if you don’t already know…) is the powerful art of buying stocks for less than what they are truly worth (This is also known as their ‘intrinsic value‘. You know… if you want to impress your friends…) it is often likened to the hunt for those hidden but valuable items at a garage sale… The secret lies in paying junk prices for a treasure product, and the ability to tell the difference.
As the great Warren Buffett, a stalwart proponent and the continued undefeated champion of this Value investing style, (& arguably the father of modern Value Investing) famously said:
“Price is what you pay.
Warren Buffett
Value is what you get.”
I like to say it in a slightly different way…
“Price is what you pay, but the value is what you’re actually paying for!”
The basic concept comes down to this: Buy $1 for $0.50. If you can grasp the power of this, your investing and future will be changed forever. Because here’s the thing most people miss (yes, even you!).
When you buy something that is half off, if you’re able to sell it again for full price, you didn’t just make a 50% return on your investment… Oh no my friend, you actually just made 100%!
The challenge (for most) lies not in understanding this principle, but in its application. How do we practically sift through a universe (literally thousands) of stocks to find those hidden, undervalued treasures?!
This is where the powerful metaphor of a lighthouse in the storm comes in – guiding ships safely to harbor. For value investors, the GAMMERS Framework can serve as that (ALMOST literal…) guiding light. It’s like a beam of light that illuminates the path to investing success, ensuring you are actually asking the right questions, making informed and confident decisions, and staying focused amidst all that unrelenting (and mostly useless…) market noise.
Charlie Munger, another legendary investor (and my personal favorite…) and Buffett’s long-time partner at Berkshire Hathaway, once said,
“All I want to know is where I’m going to die, so I’ll never go there.”
Charles T. Munger
This highlights the ‘R’ in the process (or for you pirates, that’s the Arrr!) which stand for the ‘Rational Reversal’ aspect of GAMMERS Framework. This is where we get to play devil’s advocate and critically examine the potential pitfalls of an investment.
It’s flipping the coin over and looking at everything terrible about the management, company, industry, and financial performance. it’s the all too often reality check for us as to keep us out of our own confirmation bias. Because if you’ve ever gone looking for an answer on the internet, the truth is as long as you have a question, you’ll find it.
We might be smitten by a company’s impressive revenues, but what about its rising debt levels? Or the emerging competitor threatening its market share? Or what about that plant the management keeps saying is delayed again, but ‘don’t worry, it’s just a normal part of business’.
What was I talking about again…
One of the most powerful examples of the GAMMERS process in action is the case of Apple Inc. in the early 2000s. The iPod had just been released, yet the company was not seen as the tech titan it is today. Here’s how the GAMMERS process would’ve applied:
- G: Back then, you may have been an Apple user and lover of the products they already released. If you were to follow the NL framework and combined this with your own Circle of Competence (which just happened to be in tech), and you would have had a large advantage in understanding Apple, & seeing the future potential of this business.
- A: You’d have asked the right questions and found the right answers BEFORE investing. Questions about Apple’s business model, competitors, and growth prospects would’ve revealed a strong potential for domination in the emerging digital music market.
- M: Apple’s unique ecosystem, its blend of software and hardware, was building to (what would one day become) a truly massive Competitive Advantage.
- M: Steve Jobs’ vision, leadership, and unprecedented focus on user experience were unquestionable, especially when you listened to how Steve talked about HIS company and his future plans for it (the one he was actually ousted from and eventually famously returned to).
- E: Mac computers were still niche, and many investors were skeptical about Apple’s foray into music (the iPod). This allowed The stock to remain undervalued.
- R: Risks were evident. The digital music market was unproven, and Apple was diverting from its core. But the potential reward from the core business more than outweighed the risk for value investors.
- S: The stock was undervalued. And of course, hindsight shows us just how massively undervalued it was! But even at that time it was undervalued, given Apple’s potential growth in this new market, it’s future potential, and it’s valuation.
Fast forward to today, Apple’s market cap is in the literal trillions, and early investors have enjoyed exponential returns (if they were able to hold on that long, which is not always an easy ride… something else we’ll be exploring here in the future). This kind of foresight isn’t about having a crystal ball, especially since I recently broke mine… can I borrow yours?
it’s about having an actual investment PROCESS- a repeatable, step-by-step approach. It’s esstnially a system for investing.
Because the truth of the matter is this:
Your results won’t rise to the level of your goals, they’ll fall to the level of your System.
James Clear – Atomic Habits
To unlock the power of Value Investing, it’s vital that you have a structured, repeatable process that not only saves time, but ensures you ask the right questions which leads to finding the right answers which allows you to make informed decisions. That’s the true essence of this GAMMERS Framework.
The GAMMERS Framework doesn’t promise instant riches or shortcuts to success (If someone makes a claim otherwise, I recommend you don’t walk, but RUN away from them! here, borrow these shoes…). What it does promise is a proven method to navigate the investing storm safely and effectively, guiding you to the highest potential of superior, goal achieving returns.
So, our intrepid investor…
are you finally ready to set sail? (or maybe adjust your sails away from that impending storm… seriously, that cloud is looking pretty dark… should it even BE that color?!).
With a repeatable process as your compass, you’ll embark on this exciting journey with confidence. And don’t worry if this didn’t make all that much sense to you yet, (we’ve all been there) over the 30 posts, you’ll learn everything you need to know to become a truly incredible VALUE Investor.
Remember, the value investing ocean might be vast and intimidating, but with the right tools, skills and behaviors… the task of superior returns is within your reach.
As we here at NLI always say…
You’re just One Investment Away…
It’s up to to you get to decide what it is you’re one away from (what? I can’t do all the work here!)
My goal, is to help you find it.
Talk soon.
~Ryan Chudyk~
When you read the next post, you’ll discover exactly what the heck this GAMMERS process really is and how to apply it to your own investments both current and potential.
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