Breaking free from Wall Street: My personal journey into Value Investing
Alumni / 21 February 2024
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Bachelor in Business Administration Class of 2007
Andy Hamer is a German-American investor, business leader and strategic advisor. Based in New York, Andy currently serves as Managing Partner at Hudson Square Investment Management, a long-term, value oriented investment fund. As an investor he uses an investment philosophy that calls for examining business models, rates of returns and valuation. He is heavily influenced by Warren Buffett, Howard Marks and Nassim Taleb in his approach.

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I had always been fascinated by financial markets, investing and equity markets from a young age. The stock market, its ups and downs and, importantly, the prospects of quick financial gains intrigued me. This early fascination fuelled my interest and determination to understand the complexities of financial markets, ultimately leading me to pursue my Bachelor in Business Administration at Frankfurt School of Finance and Management.

Armed with a solid foundation in finance as a graduate, I set out on my professional journey, navigating the world of finance and desperately striving to uncover the secrets of successful investing. Specifically, I aimed to understand how to achieve investing success quickly. Lured by the promise of unparalleled financial opportunities and the chance to immerse myself in the epicentre of global finance, I transferred to New York, thinking that learning how to invest on Wall Street would be the quickest way to success.

Facing reality

As my tone suggests, it was a misguided assumption. While mesmerised by Wall Street, the big city, and the people I met, I grew increasingly frustrated with some of the workings and mechanics of Wall Street. Reading Michael Lewis’s “Liar’s Poker” initially fuelled my cynicism but also opened my eyes to some of the less-than-flattering practices on Wall Street, prompting me to seek answers elsewhere. As faith would have it, I ultimately came across the teachings of Warren Buffett, the most renowned yet humble and quiet investor.

I remember initially asking myself why the most successful investor resided in a small town in the middle of the USA in Omaha, Nebraska, rather than in the financial hub of New York City. It turned out that, for the first time, I was asking the right question.

Delving into all available Letters to Shareholders written by Warren Buffett, I sought to understand the principles that contributed to his success and set him apart from the crowd of investors and Wall Street bankers. In his letters and interviews with his late business partner, Charlie Munger, I discovered a wealth of wisdom extending far beyond investing. While the scope of this article cannot cover it all, I’ll share a few concepts that guided me on this journey and can hopefully serve as a compass for others.

Understanding the basics and staying focused

First and foremost, despite claims to the contrary by numerous advisors and “financial experts”, investing is simple at its core but not easy. The key revelation for me was realising that many in the industry view stocks as mere pieces of paper traded on daily ups and downs, attempting to predict short-term price movements. Instead, it’s beneficial to look at stocks as what they actually are: pieces of businesses generating real economic returns.

The underlying trends in these businesses are often steady and long-cycled, with changes occurring infrequently – certainly not on a daily basis, as some “experts” may lead you to believe. Adopting a long-term time horizon in investing is key for seeing through the noise of short-term market fluctuations – a key distinction between trading and investing. While there is nothing wrong with having a trading strategy, it is highly relevant to understand the difference.

Understanding the underlying business and its management is crucial. Keeping the focus on growth in the underlying economic value per share is highly important. This distinction lies in paying attention to the fundamental performance of a business rather than fixating on the stock’s price movement. Too often, investors let share price movements guide their understanding of the business’s fundamentals, becoming instructed by the stock market rather than served by it, often to their detriment.

As a result, short-term share price performance can be random or diverge significantly from a stock’s fundamental value. While short-term stock valuation may be challenging, predicting long-term performance becomes more manageable by forecasting the underlying business’s long-term cash flows and, consequently, its share price.

The most critical concept, however, lies in differentiating between price and value. Even with meticulous analysis considering all factors, success ultimately hinges on paying the right price for a business. Ultimate success in investing does not come from buying good businesses or stocks; it comes from buying them well. Additionally, it serves as the best way to manage risk.

The ability to disagree

This brings me to my final point. Successful investing requires independent thinking, which is way easier said than done. It requires enduring rejection, negative comments and stomaching people’s disagreement over extended periods of time because thinking differently from everyone else is essential. Because, after all, if everyone agrees with you, it is most likely reflected in the share price. Being contrarian, therefore, is crucial; however, it is equally important and right. Perhaps this is why Warren Buffett chose Omaha over New York – to stay away from the crowd and consensus.