Applying The Value Investing Principle To Your Life
By: Sharon Singh Sidhu
Tags: Finance, Life Lessons, Self Improvement, Leadership, Life

So I learned this seemingly obvious concept recently attending a webinar on Value Investing.

Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.

The idea is to hunt for stocks that the stock market is underestimating.

This taps on the tendency for the market to overreact to good and bad news, resulting in stock price movements that do not correspond to a company’s long-term fundamentals.

The overreaction offers an opportunity to profit by buying stocks at discounted or undervalued prices.

Value vs Price Defined

So to understand how we can use the principle of value investing in our daily lives, we have to know the difference between value and price.

In an ideal market, the price of something is an accurate reflection of the intrinsic value.

For example, if you buy a bag of apples for $5, you’re saying that you think that bag of apples is worth $5.

Someone else may only be willing to pay $3 for it and someone else who really wants to get that last bag of apples may pay $8 for it.

As you can see, value can be different from price.

With value investing, there are some fundamentals to determine the intrinsic value of the stock and there are some ‘checklists’ you’d go through to get as accurate an assessment of the value as you can.

How the Principle of Value Works In Real Life

This played out in real life for me recently.

Our TV conked out last week. So we needed to get a new one.

My husband loves his TV. And so does our son.

My daughter and I said, ‘just get something that’s reasonably priced and works. Then we can save money for a college education.’

Not for the guys. The resolution, color, contrast, pixels, LED, etc. had to be assessed.

Eventually, they decided on a new model of a Smart TV.

When I heard how much it was, my instinctive reaction was frustration.

Here we are trying to work towards our financial goals, and there they are, splurging on an unnecessary luxury.

Why do we need the latest model when a basic Smart TV will do?

Sounds logical right?

When I asked my husband and son why they decided to pick this latest model, I learned that this model had technology which the older models didn’t have.

It would mean that like a computer, this model of Smart TV they picked out was built to last longer.

Their approach was to spend a couple hundred dollars more to get something that would last longer, rather than get a cheaper one that would break sooner.

We’d have to fork out more money in the long run to get yet another TV.

Financial & Life Lessons I Learned from Applying this Value Principle to Buying a TV

This simple incident taught me a few lessons.

1. Low Price Doesn’t Always Mean Good Value

You don’t always have to go for the cheapest thing in your quest to save money.

Yes, for certain items, the lowest price could be best, but don’t forget about the value too.

Instead, try to go for undervalued.

Meaning, something that gives you a higher value than the price you have to pay, even if the price isn’t the cheapest on the market.

Like the TV we eventually decided to get, it’s not the cheapest one, but for the value it brought, the price was lower than the value we’d get in return.

It was undervalued to us, hence it was a good buy.

To determine the value of the TV, the boys had checked out the specifications, compared them with other cheaper models as well as other models with comparable specifications but came with a higher price tag.

2. Don’t Assume & Judge. Widen Your Perspective Before Jumping To Conclusions.

Before I talked to the boys, I thought in my own limited mind what a waste of money.

Here they go again splurging on their gadgets.

But then, as I spoke to them, I realized they weren’t mindlessly splurging, they had taken the time to compare and think about the longer term.

In retrospect, our last TV which seemed expensive at the time had lasted us 10 years.

With my son’s computer, he’d researched to find the best deal he could get for the specifications on his computer.

So before jumping to conclusions based on what only you know, talk to people to understand where they’re coming from.

They have their reasons for doing what they do.

Even if you don’t always agree with them, think about their circumstances, their context, how they were raised, their values and priorities, etc.

Given those same circumstances, would you have decided similarly?

3. Change Your Beliefs to Get Different Results

At first, my belief was that the boys were just being boys and they wanted to get the latest gadget.

That got me upset because it was different from where I was coming from, which was to stop spending on unnecessary luxuries at this point.

I mean, we’re entering probably one of the worst economic slowdowns and they want to get the latest TV?

But after talking to them, I realized, they had the same intention to save money in the long run as I did.

When I realized that, it changed my beliefs about them.

The boys weren’t splurging on the latest gadget.

They are looking for value, not just the lowest price.

Instead of feeling frustrated, I now feel so grateful and happy that we’re aligned as a family on our financial goals and values.

That turned my initial anxiety and frustration about spending that money on the TV into one where I felt good about spending that money on something valuable.

Yes, I know having a TV, especially one of the latest Smart TVs is a privilege and luxury.

But the point I’m trying to get here is that you want your actions relating to money to bring you long term joy, fulfillment, and well-being.

Not anxiety, fear, and worry.

Finally…

Yes, we could have spent the money on food and basic essentials instead and live without a TV.

But don’t forget, financial wellness is about the lifestyle YOU DESIRE.

It isn’t about stinging and saving to live a life you don’t desire while looking to those who are living the life you want with envy.

If your current income isn’t affording you the lifestyle you want, you have 2 choices.

Cut your expenses Increase your income

But…

You can only cut your expenses so much before you’re living a miserable life.

Or you can earn a lot but spend more and still be broke.

Both don’t sound appealing to me at all for this short time we have here on Earth.

The (Not So) Secret to Financial Wellness

I’m a proponent of doing both AT THE SAME TIME.

Cut your expenses AND increase your income.

Not just one or the other.

There’s no shame or guilt in spending money that you’ve worked hard to make.

Just make sure it’s within your means.

Oh, and to make more money, be prepared to put in the time and effort to work on yourself.

Work on your skills, knowledge, experience, and more importantly, your beliefs about what’s possible for you.

In case you’ve forgotten, that’s anything you set your mind to!