To profit as a value investor you must:
- find an instance where the crowd is wrong,
- that gap must be within your circle of competence, and
- the value of the asset purchased must substantially exceed the price paid (e.g., 25%), so you have a margin of safety which can allow you to profit even if you make a mistake or suffer from bad luck.
Since these three things happen at the same time only occasionally, most of the time you should do nothing. Since inactivity tends to be contrary to human nature, learning to be patient and yet aggressive when the time is right is a trained response. This is part of the reason why value investing is simple, but not easy.
via: 25iq
