THINKING OUT LOUD

“So, you just stick with blue chips”

When I meet people and get talking about my business of being an investment advisor, it is a natural progression in the conversation that they ask about my investing and analysis style.

I start by telling them that I am a value investor. “Oh, like Warren Buffet!”, they respond. Well, “no” I say, because I’m not Warren Buffet for all the obvious reasons. I have a style and philosophy based on analysing a company, its business, their management, its products or services, the balance sheet, income statement, cash flows etc etc.

This helps me to build a basis for whether I investigate and analyse the company any further, let alone try to determine whether it’s current stock price is attractive enough to become a shareholder.

The listener, then usually responds with, “So, you just stick with buying the blue chips, don’t you”.

Here lies the shortcomings of many amateur investors. They think that buying “blue chips” circumvents the need to perform analysis. Many amateur investors just don’t do enough “work” prior to making investment decisions. This type of investor thinks that if you “just buy blue chips”, then you are safe and OK.

I can tell you that this is simply not the case.

In short, if you don’t buy your assets cheap enough leaving you with a margin of safety or error, then your capital is always vulnerable to a loss.

Being an investor who looks for bargains, means that you look for assets of any kind which present value. The asset or security doesn’t come with a pre-determined label of “blue-chip” or any other descriptor.

You can buy a house in a “dress circle” part of town, but if you pay too much, you can lose money.

Buying “Blue Chip” is not the saving grace when investing, if you pay the wrong price.