The beauty of stocks investing is the power of compounding.

I never did personally understand it until two years ago, after I learned about Bro. Bo's maid story. Since then, I never looked back.

Oh by the way, last July 20 marks the second year of my investing journey. My strategy, that is - Value Investing, has taught me that investing shouldn't be a risky venture. It should be an activity that preserves the value of your capital and gain huge returns both at the same time. More importantly, it also should be fun.

The past two years has been great because of two things; saving and compounding.

I managed to save a lot because of the saving habits I applied. I started from zero and managed to save my way up. On a cumulative and compounded monthly growth rate basis, It has grown to about 3,341% and 16% within a 25-month period respectively combined with the capital gains I realized during the period.

It's exciting to think of the next two years in my journey. And I'm more positive that I can do better given the knowledge I acquired and will acquire in the future.

Realized Gains I Made

Would you believe if I told you that I only made eight sell decisions of which, seven won?

The winning trades I made came from MEG which I now consider as a big mistake. But nonetheless, I gained 14.79% from it. The others were SGI which I traded twice at 2.65% and 12.84%, CLI at 5.16%. The first trade I made to WPI were at breakeven levels. Same is true with PGOLD and EDC because I felt that there are better opportunities out there. But I bought back WPI after I made an extensive review of its financials in which, I'm now sitting at an unrealized gain of 47.19%. 

The losing trade came from HVN at -16.07%. Luckily, I only invested around Php 10k that time.

Overall, the total gains including the losses I realized in relation to the capital I invested equates to 9.91%.

My current positions compose of stocks that trade below their intrinsic value. These stocks have low price-to-earnings and price-to-book ratios, have almost zero debt and generate positive owner earnings.

The most notable investment I made is WPI which I believe I bought at 75% discount to value. LR and ACE where bought somewhere between 33% and 50% discount to value.

Should I decide to liquidate these positions today, I'll be sitting on a total of 35.11% realized gains in relation to capital I invested.

4 Tips To Avoid Losing Money In The Stock Market

Although I made some dumb decisions (e.g. HVN), yet I was able to grow my savings on a less risky way.

So how did I do it? Simple! By buying undervalued securities. Thinly traded or not, as long as the stock trades below its intrinsic value, I knew I would make money by simply buying it and waiting for the market to price it near its value.

If you feel bad about your investing decisions, then take these four tips to get you back on the right track.

#1 Analyze The Value Of The Company By Using Book Value As The Starting Point.

The book value serves as a rough measure of a company's intrinsic value. There are businesses whose intrinsic value overstates it, and there are those that understates it. There's a good chance of success if you buy companies that are trading at a significant discount to book value.

In my investment decisions, I always try to buy assets at a discount which I did when I bought SGI using net-current asset value approach.

The reason for this is that assets doesn't change that much. Unlike earnings which can change dramatically within a year, assets don't. When I do my valuations, I start with asset valuation first. I look for the tangible book, net-current asset values and net-net working capital values. Then I get the value of the future cash you can take out from the business without affecting its operations. If you combine the two, you get the intrinsic value of the business. I use a DCF spreadsheet model to make it easier for me to do the math.

If the value of the future cash turns out to be a negative, it will decrease its book value. Even if that's the case, as long as the business is trading less than the negative cash and book value combined, it's still a buy and you can make money from it.

#2 Use 33% To 50% Margin Of Safety In Your Buy Decisions.

Why 33% to 50%? I find this to be the safest way to avoid risk. I bought WPI at a very high margin of safety. So did LR, SGI, ACE and CLI.

When bought HVN and PGOLD at a premium, I realized I made a mistake. Value is easier to calculate unlike growth which is harder to predict.

How important is this concept in my investing decisions? Well this gives me a large upside in case I'm right and a small downside if I'm wrong.

As a general rule, I use a higher margin of safety if the stock is classified as a 'cigar butt'. For industry leaders and index stocks, 25% is enough.

#3 Don't Let Emotions Dictate Your Decisions. Have Conviction.

Just because the stock is rising fast does that mean that you should buy it. If you let emotions get in your way, you'll not going to do well. Fear and greed is an investor's greatest enemy but you can avoid these deadly emotions by having a proper investment philosophy and sticking with it until the end.

If you made a decision to buy a stock that's undervalued, you have to stand behind it. You just have to make sure that you're correct in your judgement. Don't be afraid to be alone.

Stocks don't go up immediately. It may take a few months to a few years. You're lucky if you get results in a matter of weeks. Have patience and you'll be rewarded if you're right in your valuations.

#4 Compounding Works So Always Remember The Rule Of 72.

If you can make 12% a year and reinvest that back, you can double your money in six years. If you can do 24%, that will take three years.

Don't be tempted to spend your gains. You have to reinvest it in order to lessen the amount of time needed to double your money.

Final Thoughts

In my third year of stocks investing, I'm looking forward to do better so that I can share these experiences to aspiring new investors out there.

If you feel bad in your investing decisions, don't be. Take these advice I mentioned and let me know if this works for you.

Got questions and reactions? Leave them in the comments section below.

Happy investing!