The Equitymaster Way

'What courses should students take if they want to become successful investors?'

This was a question put forward to the value investing legend Warren Buffett during one of his company's AGMs. And as is the case with most of the things he does, the Oracle's answer was all simplicity. He was of the view that in order to be a successful investor there are only two things that matter. And these are the ability to value businesses and an un derstanding of how the markets work.

Outliers of the investing business

Research analysts, are supposed to be ' a tribe of professionals who work hard to carry out the twin responsibilities of valuing businesses and understanding markets'. And that too in the most objective manner possible.

Alas, that's not always the case.

There's a mountain of data out there to suggest that research analysts don't necessarily work in the best interest of investors. This is because they don't earn their incomes based on how many right and wrong recommendations they make. Instead, they are based on how many feel-good reports they wrote about the client who has other business relationships with the firm these research analysts work for.

In other words, the same companies they write about... determine their incomes.

It is natural for objectivity to get tossed out the window and the interest of the small, retail investor to get quashed under such a scenario.

This is not all. Their incomes also depend on brokerage revenues. This means that the more they make an investor transact in stocks, the higher the brokerage revenues and consequently, higher the incomes they take home. This is again not in the best interest of individual investors. For stocks are not pieces of paper but part ownership in a company and one cannot keep switching real, life and blood businesses frequently for the sake of slightly higher brokerages.

We are proud to say that we are sort of outliers of our industry.

We have neither any brokerage arm that compels clients to churn portfolios frequently nor do we care about companies getting displeased with our reports for we are totally committed to our subscribers. In fact, we have even been turned away by few companies with the excuse that we would not make any difference to their market capitalisations.

But none of this has deterred us. For success in the area of stock research does not come with having good relationship with clients nor does it come with hiring star analysts. As Buffett pointed out, what matters is good old common sense and a fiercely independent thought process not coloured by any hidden agenda.

Value investing - The style we are devoted to

If investing isn't about buying a stock at a discount from the determinable intrinsic value of the company, then it can't be anything else.

This cardinal principle, propounded first by Benjamin Graham, the father of value investing, stands as strong today as when it was first introduced about 7-8 decades ago. In fact, if anything, its appeal has only increased, reinforced by the numerous success stories that the discipline has spawned. None bigger than that of Warren Buffett, who is one of the richest men in the world, solely on the basis of few value investing principles handed down to him by Benjamin Graham and the ones that he steadfastly stuck to.

At Equitymaster, we are totally devoted to value investing and would not ever give up this approach for anything else.

Our sole aim is to find companies with strong competitive advantages, impressive past track record and an honest and capable management team that are trading at a discount from their intrinsic value and recommend them to our subscribers.

However, we've not restricted ourselves to just recommending stocks. We are also firm believers in investor empowerment and consequently, through the platform that our website offers us, we've written copious amount of material on sensible, long term investing. You can rest assured that this effort is only going to get bigger and better in the times to come.