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The Law of Investment

Updated: Aug 25, 2021

It is just like any law of nature, it does not falter under the human influence.

It is a force of nature that is beyond any human intervention.

It likes balance, and dislike imbalance.

It does not go against the law of physics, but it works the same way physics is.

What am I talking about?

"The Law of Investment."

The law consists of the following corner stones:

  • Great company

  • Great industry

  • Low market price

However, for most of the time, the three corner stones don't always shows up together.

Sometimes it is:

  • Great company

  • Great industry

  • Really high price

Other times it is:

  • Fair company

  • Fair industry

  • Low price

Some other times it is:

  • Poor company

  • Dying industry

  • Really Low price

When the three cornerstones aren't together, we call it the "Balanced state". The natural state of the force. That's how the force acts 90% of the time.

It can be in any combinations at one time when it is in the balanced state.

On the other hand, when the three cornerstone showed up together, we call it the "Imbalanced state"

This is when investment opportunities emerge!

As value investors, this is when we invest.

We, as value investors, understands that we're no match for it's force. We don't attempt to change it's state from imbalanced to balanced.

We merely ride on, like a leaf on the surface of a river...

We slowly land ourselves on top of the surface of the water, without making a splash.

Then, we wait patiently with open arms and embrace it's force.

We may stay on the surface of the water without any movement for days, or months; But, we're satisfied.

We know with great certainty that the law of investment doesn't allow our investment to stay in the imbalanced state forever...

It'll take our investment from imbalanced to balanced, from low to high. Just like river must flow from higher elevation to lower elevation.

We have so much certainty because it is how the force of nature works. River does not flow from low elevation to high elevation. It just doesn't happen on earth.

For many investors, as soon as they invested in a stock, they begin to lose sleep. They wake up at night, stare at the stock market quotes all night. Although the market is already closed for the day.

They're anxious, when will the stock move up or down.

They need results fast, and they could use the money.

For us value investors, we sleep like babies every night.

For us, there is nothing to watch in the stock market quotes, because we already know it'll go up in months, and years. There really isn't a need to stare at the quotes.

There is no anxiety, because there is no uncertainty.

When the warm spring sun rise from the horizon, the ice that clogged the river stream melts away. The little leaf that held on to the surface of the river stream, starts to flow with the river, and travels into the great oceans.

All without a single stroke...

For your reference only...

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