Why investing is hard

26102020_Why investing is hard

Why investing is hard

As Warren Buffett once said: “Price is what you pay; value is what you get.” This simple definition underpins the logical pursuit of value investors to make investments in businesses only when prices are materially below their true value. This seems absurdly obvious and yet executing on this approach is rather difficult. Why? Because “true value” is, essentially, unobservable.

That said, there are some logical analytical steps that can be taken by diligent investors to ascertain, with some degree of accuracy, the true value of businesses – or range of values more typically – with a reasonable degree of confidence. These steps can be broken up into two broad buckets: (i) what does the future hold for the business; and (ii) how can that future be converted into a single numerical value – or range of values – today?


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Andrew Macken is the Chief Investment Officer of the Montaka funds and the Montgomery Global funds. He established MGIM in 2015 in partnership with Montgomery.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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