When world-class value investors such as Warren Buffett and Mohnish Pabrai are looking for their next Geico or Frontline(FRO), they screen the whole universe of public traded companies following certain criteria. From those candidates , they pick the businesses they fully understand and whose intrinsic value they have a thorough understanding of. They know they are getting a bargain because of market's irrational valuation on those distressed business, most of which are big losers on one year graph.
But, how come only a small number of people become world-class and make themselves a fortune doing so, while most other people following the same strategy have failed and get trapped in "value lemon"?
Despite the fact that they all claim they are following the same value- investing approach, why are the the results so drastically different ?
The answer to this question can be very complex, to name a few reasons: availability of information, analytical reasoning ability, knowledge of finance, accounting, tax and bankruptcy law and etc.
We have to admit that those gurus are true professionals and they do tremendous amount of research to have an upper hand on their odds. Besides, they are extremely smart and some are born with investing instincts. What can we say, not everyone is born equal.
Does that mean we retails don't stand a chance to do long-term investing following the proven approach?
The answer is "No". Everyone has his/her own edge in particular areas and can discover leads to successful picks. (I am going to discuss this in a future post)
To be continued.