An Introduction to Business Investing

Welcome to F Wall Street. Before you get overwhelmed with the amount of information on this site, let me give you a brief overview of intelligent investing from a business perspective.

The Basics of “Business Investing”

Wall Street is typically divided into two schools of investing: growth and value. According to Wall Street, growth stocks have high PE ratios and exciting stories; value stocks have low PE ratios and have fallen from higher prices in the past.

The geniuses on the Street whisper Don’t forget — these are actual businesses, and then they do everything they can to make you focus on the price of the stock instead of the value of the business.

At F Wall Street, we do not focus on price. We strive to invest like Warren Buffett — focused on intrinsic value, buying businesses (not renting stocks), and ignoring daily price swings. Learn more about Business Investing ».

Risk versus Reward: Does More Risk Mean Greater Losses?

Wall Street will have you believe that the way to earn greater gains is to assume more risk. While that may be one way to make more money, assuming more risk usually leads to greater losses. There is another path to high returns.

We are not conventional investors, blindly throwing money into mutual funds or hot stocks. As non-conventionalists, we do not believe in speculating or gambling. Instead, non-conventionalists look to make smart business decisions — decisions that are generally not popular at the time. Rather than spreading our money out and hoping the good investments outperform the bad ones, we put our money into our best ideas and leave the “bad” investments alone.

Conservative Does Not Mean Conventional, and Vice Versa

The very fact that we are non-conventional does not mean we are aggressive. In fact, we are typically more conservative than typical mutual funds. Conventional wisdom tells us that owning just a few investments is risky. What if those investments are all wonderful?

We do not believe that the best way to reduce risk is to take money out of our best ideas and spread it around to second-best investments, simply to minimize the price swings we may experience.

What Are Our “Best” Ideas?

Our best ideas (in stocks, at least) generally come from two sources:

  • General stocks: We recognize that stocks represent ownership in a business. As such, we seek to figure out the value of the business first. Then, we figure out how much each share of stock is worth. Only when we have the opportunity to steal the business because it is on sale do we invest.
  • Workouts: When a merger, acquisition, or other corporate event is all but complete, we seek to make money on the deal. These workout situations offer us a specific profit over a definite timeframe, and beat the heck out of leaving money in cash.

Our Goal for Growth

The non-conventional investor is looking to beat the markets by a significant margin in the long-term. Though each investor is different, the common goal is generally to beat the markets — and usually by at least 5%-10% a year — over various four- and five-year periods.

In real numbers, that would equate to 15%+ returns — doubling our money every five years or less.

To strive to achieve our goal, we ignore the noise on Wall Street and instead turn to company reports and financial statements. If we don’t have a price in our heads before we look at the stock quote, we pass.

How Does One Become a Non-Conventional Investor?

Some people have it built into their system; most people work very hard to become non-conventional investors. The best way to become a non-conventional investor is to:

  • learn everything you can about business;
  • study various investment and trading strategies (ie., know your enemy);
  • truly come to know that price follows value; and,
  • truly come to know that risk is in the business or opportunities, not in the strategy.

You don’t have to be non-conventional to achieve your goals. But to achieve your goals, you must stick with the investing strategy built into your psychology or put forth the effort to change your psychology. And it starts with a change in perspective.

You can read the various articles and comments; but, if you are totally new to business investing, you may want to start with Buffett’s Timeless Advice To Stock Investors, learn more about Your Commitment to Business Investing, and see how we look for no-brainer investments.

Not sure if you can handle the market swings? See how you can craft a portfolio allocation that will help you sleep peacefully. Remember: Investing can be fun and exciting…but it shouldn’t be! Your goal is to make money — comfortably, confidently.

Exciting won’t pay your bills in retirement.

— Joe