So there are 2 components in successful value investing. Finding quality businesses and finding out their intrinsic value then buying the stock which is alot lower than its true value. How much time do you spend on each would you say? This investor on youtube said takes about 1000 hours to get ready to make an investment decision, that sounds crazy to me, what the hell do you do for 1000 hours? Surely it doesn't take that long to figure out whether or not the business is of high quality.
I would suggest that if you only have a small amount of capital (i.e. dealing with retail products only, so less than $2m for arguments sake), then there's really only one part to it - finding out the business' intrinsic value. Once you have a feel for it and you notice the price is well below that value, you perform the transaction, nothing to it really.
1,000 hours seems extreme, but perhaps in some complex situations it may not be enough. For example, you want to understand:
- Company management
- The history of the company (at least 5 years worth)
- The balance sheet, any conditional or off-balance sheet liabilities, a good feel for their assets (e.g are they listed at purchase price or market value), etc
- Their operational model, what proportion of costs are fixed vs variable, gross profit margins
- The background behind any licensing/intellectual property
- Industry mechanics
- Industry standards, margins (e.g. who's the lowest cost player)
- Regulation or lack thereof
- Exchange rates/currency risk (e.g. if a U.S. company has AUD revenues, what is the impact if the AUDUSD yield spread narrows?)
Sometimes when you're dealing with companies that are cheap enough, you don't necessarily need to know all of this. For example, if you could buy a company at a significant discount to asset value and these assets were listed at under market value, then you could argue that future growth is less important, as you potentially get it for free.
An example that comes to mind is UOS. Debt free, swimming in cash, trading at 2/3 * NTA and about 6 times earnings (although last year had some property revaluation within it). I still need to understand currency risk, management history (and age in this case), any balance sheet liabilities and potentially look at their major subsidiaries. But I don't need a lot of detail around who the lowest cost player is, because the NTA backing is large enough to provide minimal downside in my investment.
On average, I probably spend about 40hours looking at a particular company, mostly in thought about the "what if" scenarios. If I find a situation I can't answer, I'll get as much information as I can to do so, then think again.
Perhaps I'm not spending enough time evaluating the company... I can't answer that. But 1,000 hours does seem extreme.