Footrot Flats author Murray Ball made an impact in the childhood lives of many kids growing up in New Zealand (including myself).

Farming was a foreign concept to me as a kid growing up in a 1980’s sleepy seaside community. My Granny bought me the Footrot Flats comic books. My mind was blown by an author who could convey farming concepts within an envelope of story telling. I know this may only make sense for Kiwi’s of a certain generation, but when I spoke recently to Tom Botica, he reminded me of Murray Ball.

Tom’s built a strong following on YouTube, not just in NZ but around the world. He’s effectively telling stories of other well known value-investors, and sharing his knowledge as he himself learns more. In the process of listening, you can learn quite a lot about the brand or style of share investing that he engages in. Tom isn’t a financial adviser or professional in the investing space at all – but he’s part of a new breed of ‘finfluencers‘ who popped up over the last 4-5 years thanks to social media.

DIY investors who don’t access personalised financial advice, can still access a financial education these days online. While in some cases, this creates a risk some could suffer harm due to financial ‘mis-information’, there’s also potentially a lot of good that comes out of people sharing their own investing journeys. Many of us hate to be told what to do, but when we see other’s solving a problem we ourselves struggle with we often learn far more.

How to invest in individual shares. Some may find this style more difficult than others, but it’s still a skill that can be learned by you and by me too. Value investing is an investment strategy that involves picking shares that appear to be trading for less than their intrinsic or book value. (Investopedia)

So an important disclosure I should make clear from the outset is this: I understand and believe that value investing is a valid technique for buying good companies ‘on sale’. I don’t exclusively subscribe to it though. There’s nothing wrong with it, but as with many areas of wealth-building, because I’m still learning. I’m cautious of subscribing to any one methodology as, being human, I struggle to hold more than one opinion after I think I’ve found ‘the way’. I understand the importance of meaning, moat, management, and margin of safety, but I also understand the importance of macro-economics in an age of extreme geo-political tension.

If you’re a passive, cost-focused investor, value investing may contain elements of truth that could offend you.

Let’s be honest, once we form our views, it’s really hard to pull the anchor even though it’s getting late. You may genuinely be passionate about dollar cost averaging into low-cost funds, but don’t underestimate the marketing machine of fund managers worldwide too, combined with the endorsement of conservative-style finfluencers.  Stay safe, don’t stick your neck out, and you’ll be just fine.

Managed funds may be the easiest way to regulate, distribute, and monetize financial products. For many happy to invest, without getting their hands too dirty, this is still a very reasonable product fit though. There’s less opportunity to ‘lose it all’ when your money’s spread out everywhere, and there’s no pressure or expectation one option is better than another.

I refute the assertion it’s the correct answer for everyone though. Whenever simplicity masks complexity and your own judgement isn’t ever required or even solicited, surely there’s a cost? If you want a deeper diver around this topic please be sure to check out Cole Hauptfuhrer on Ep 258.

At the core of a value investing framework rests a belief that you can outperform the average.

‘Really, I was told in the long run that was impossible…’

By whom? Was it from someone trying to provide safe, generic guidance most likely to be appropriate for the majority?

In most cases, a concentrated investment strategy in a handful of companies is never going to be a wise strategy. It’s not that we’re stupid, it’s just not our thing. For some though, this is exactly what they should be doing.

What is the efficient market hypothesis?  You should wait for opportunities to come to you and you should arrive at a buying decision only after well considered and unemotional analysis. If you do invest this way, you’re most likely to find the crumbs others leave behind. The efficient market hypothesis states that share prices reflect all information and consistent out-performance from share picking is impossible. Value investors following a concentrated strategy,  don’t really believe in the efficient market hypothesis though.

As with any area of investing, or perhaps life for that matter, there can be far too much complexity for our over-simplified and self-installed operating systems to handle.

When reality doesn’t conform to our belief system, what we believe should change. Instead, we force-feed ourselves mental ‘patches’ to cover up the cognitive dissonance sourced from a mischievous contrarian thought. Being too dogmatic around investing methodologies will become dangerous from here on in though. Change is changing, so whatever you think you know, learn it again.

There’s something about value investing that really resonates with me though, and yet I’m not even a practitioner of it. As with every other investor I’ve ever met though, the secret isn’t in the style, or the tools. The real secret lies in our own psychology. We’re scared, confused, angry, feeling un-worthy, or even lied to, and we haven’t got a clue what’s coming next in our lives. How could we ever be certain about an investment move when that’s going on in our heads?

True wealth building starts in the mind, not the pocket.

In the same way residential property investors one day ‘grow up’ to become commercial property investors, maybe investors like me or even like you too, will one day grow up to invest more in individual shares. If that’s you, the this episode is for you.

Please do your own research as usual, don’t trust any one paradigm when it comes to building wealth – bring your mind along for the journey and enjoy the chat today with Tom.