Is anyone else here a value investor? I first discovered finance in economics class in my final semester of high school in the early 1990s. This was the most interesting class I ever took, and it led me to read further. Value investing made the most sense to me. I have read _The Intelligent Investor_ by Benjamin Graham, Warren Buffett’s letters to shareholders, most of John Train’s books (including _The Money Masters_ and _Famous Financial Fiascos_), _One Up On Wall Street_ by Peter Lynch (whom I find to be very eclectic), and most of Andrew Tobias’ books. I have been a Berkshire Hathaway shareholder for nearly 4 years and have attended each of the last 4 annual meetings. I am also a Wesco Financial shareholder (even though it’s not necessary for attending the annual meeting) and attended its annual meeting once. When I go to the library, I like to read _Forbes_ and _Barrons_. These publications are more than willing to showcase views outside the mainstream. _Business Week_, on the other hand, IS the mainstream. In fact, _Business Week_ is the magazine infamous for the August 1979 cover story “The Death of Equities”. I actually read this article in the university library in the early/mid-1990s, and I was amazed about how different things were back when I was more interested in Sesame Street than Wall Street. The sentiment was that stocks were for old fogeys out-of-touch with the New Era of double digit inflation and low valuations and that the real money was in commodities. In the middle 1990s, the conventional wisdom was that stocks were the best investments, and bears were as dumb as Beavis and Butthead. Although my career has been in engineering, I fully agree with Benjamin Graham that good investing doesn’t require math beyond arithmetic and basic algebra and that the use of trigonometry, calculus, differential equations, and other higher math in investing is BS. The past 16 years have been hard times for value investors. Value stocks have been so scarce. The cheap stocks of the 1990s and 2000s have been FAR more expensive than the cheap stocks of the 1970s and early 1980s. The stories about strong businesses selling for less than the cash in the treasury sounded like fairy tales, much like walking 6 miles to school in the ice and snow. To quote the Carpenters, it may soon be “yesterday once more”.
After listening to a friend of mine continually pound the table about value investing I decided over the holidays to get “Security Analysis 6th edition” by Graham. The concepts of value investing seem really simple, margin of safety and investing rather than speculating. While I was an extreme pessimist for most of the year, and while I still maintain a negative outlook for 2009 and 2010 I can’t help but wonder if things are underpriced. Using Graham’s timeless words of wisdom I can’t help but think I may be slowly converting into a value investor. Are you much more active in today’s markets? Any sectors in particular that you are favoring?
I used to claim to be a value investor, now I dont see the benefit of boxing myself in. The whole big picture idea is capital appreciation, correct? So then you should buy whatever you think is going to provide that to you. That company may be a growth stock or value stock. I see more and more managers taking this view. I guess I will always have an affinity for a low P/B or other trad value metrics, but I guess I fly neither flag now. As far as the past 16yrs being tough for value investors I have to disagree. Depends on your definition I guess, but historically value has outperformed growth over that timeframe.
I need to start hunting for bargains in the US stock market. Valuations seem to be returning to normal. I am concerned about the future of the US dollar. With unprecedented multi-trillions pledged for bailouts (and more to come), near 0% interest rates, and Helicopter Ben working as hard as he can to ignite hyperinflation, I think the US dollar is in big trouble. Of course, flooding the world with US dollars requires that everyone cooperates. If investors in other nations refuse to buy US Treasury debt, then the US government could default, and that would make the US dollar worthless. That said, I haven’t bought any gold. Gold is risky, and the chance of one of the above scenarios happening may already be priced in. Market timing is VERY important in gold, and I already know that I can’t time markets. Even Warren Buffett and Charlie Munger can’t time markets, so why would you expect anyone else to do so successfully? I have invested in Hong Kong dollars (going nowhere until the USD peg is terminated), Japanese yen (doing well), a Japanese stock ETF (DFJ, down quite a bit from where I bought), and Premier Exhibitions stock (PRXI, an aggressive growth stock down a lot from where I bought).
I rode the Yen for awhile this year and it did great, dropped it a week or so ago. The thing about US debt is that it is in every country’s best interest to buy US debt(well, aside from the “axis of evil”). The US is still the only country with the power to police, protect, and provide aid to other countries when needed. Therefore even if they dont love the USD, the future without a strong US to depend on is scarier, so my belief is they will continue to buy US debt. I agree these bailouts and stimuli will hurt a bit sometime down the road, but at least the govt is able to raise money now by issuing debt at practically 0% interest. F Gold. I think debt is the obvious play for the intermediate term, inv grade corps. I would rather do that than equities in many cases, but hate the idea of buying it in a fund format only to watch the fees eat away and the manager screw it up (yeah i know, bill gross is smart, etc).
DHVI, you’ve got a little more reading to do. Maybe read what Buffet thinks about buying gold.
"The past 16 years have been hard times for value investors. Value stocks have been so scarce. The cheap stocks of the 1990s and 2000s have been FAR more expensive than the cheap stocks of the 1970s and early 1980s. The stories about strong businesses selling for less than the cash in the treasury sounded like fairy tales, much like walking 6 miles to school in the ice and snow. To quote the Carpenters, it may soon be “yesterday once more”. Which leads me to believe that they will be among the strongest in a recovery. Willy
WillyR - Did you have any madoff exposure? You work a fund of funds, right?
I propose a complete and permanent moratorium on AF from ever citing lyrics from “The Carpenters”.
tvPM Wrote: ------------------------------------------------------- > I used to claim to be a value investor, now I dont > see the benefit of boxing myself in. The whole big > picture idea is capital appreciation, correct? So > then you should buy whatever you think is going to > provide that to you. That company may be a growth > stock or value stock. I see more and more managers > taking this view. I guess I will always have an > affinity for a low P/B or other trad value > metrics, but I guess I fly neither flag now. > > As far as the past 16yrs being tough for value > investors I have to disagree. Depends on your > definition I guess, but historically value has > outperformed growth over that timeframe. I think Buffet doesnt subscribe to the growth vs value demarcation either. I got this quote from Wikipedia: Market commentators and investment managers who glibly refer to growth and value styles as contrasting approaches to investment are displaying their ignorance, not their sophistication.
“Even Warren Buffett and Charlie Munger can’t time markets, so why would you expect anyone else to do so successfully?” I disagree. They can’t because that is not their skill. There are also many traders out there who are good at timing markets but can’t spot a good long term company if it smacked them in the face. Trading is a different skill to investing. As a simplistic example, its like Buffet vs Soros. Soros could catch a short term move and size up effectively. I used to work at a daytrading place and I saw guys go 5+ years without a losing month under tight risk management. Now if you could combine the 2 skills that would be something … i guess thats what Quantum was with Soros and Rogers working together. Up every year for 30+ years
DiehardValueInvestor Wrote: ------------------------------------------------------- >If investors in other nations refuse > to buy US Treasury debt, then the US government > could default, and that would make the US dollar > worthless. Can’t happen with a floating fx policy and nonconvertible currency.
You mean the guys who buy low and sell lower?..
memalos, i know what do u mean after reading benjamin graham i thought value investing is the thing thankfully before putting serious money i simulated it picked 16 stocks, criteria was simple, p/bv should be less than .8, dividend yield should be greater than 5%, mcap should be less than $xx mn, severely underperformed the index then tweaked the criteria further, there should be no or minimum leverage, still underperformed the index went ahead and actually invested in index
sameeragarwal Wrote: ------------------------------------------------------- > memalos, i know what do u mean > after reading benjamin graham i thought value > investing is the thing > thankfully before putting serious money i > simulated it > picked 16 stocks, criteria was simple, p/bv should > be less than .8, dividend yield should be greater > than 5%, mcap should be less than xx mn, severely \> underperformed the index \> then tweaked the criteria further, there should be \> no or minimum leverage, still underperformed the \> index \> went ahead and actually invested in index what time frame did you use? and did you say mcap LESS than xx million? the screen itself is a little more complicated than just that! all intelligent investing is value investing!! on the USD…what option does china have except USD? we saw recently that china is more dependent on the US than the US is on China (china infact is giving iceland loans to buy stuff from them and they’l stop buying USD’s!!!)! how do you think inflation is controlled? what can the fed do to rein in money supply when it needs to? A LOT… what is the intrinsic value of gold? this is THE time for value investing http://safe-and-cheap.blogspot.com/ I have analyzed CBS, MCF and UFS on the blog, I also wrote a little on MLP’s. In addition, I am looking at health care insurers, pharmaceuticals, media, some finance companies, energy and corporate debt
"all intelligent investing is value investing!! " I’m not sure I’ve ever read an intelligent sentence punctuated with one exclamation mark, to say nothing of two. There must be other ways to make money than “value investing”. "this is THE time for value investing " Unless we are headed for a depression. In which case buying calls on assets because some historical metric says they are cheap is a really bad idea. "what is the intrinsic value of gold? " The intrinsic value of gold is that it is rooted in the human psyche. People have valued it for thousands of years and it has universal appeal. Civilizations that have no contact with each other have all held it as a store of value. That’s a pretty solid foundation for value - not as good as land or food but better than gov’t promises and up there with projected risky cash flows.
This thread is giving me a headache First of all - I am going to echo NakedPuts by saying that you need to read more on the subject (no offense implied). Sam…too long of a screen name… I recommend you read Buffett’s The Superinvestors of Graham and Doddsville speech. A lot of others have confirmed the soundness and success of the approach. I mean hell just pick up any David Dreman book and he cites a large number of studies in the footnotes. JDV - unfortunately we cannot credit bsivia with authoring the remark “all intelligent investing is value investing” - Charlie Munger takes credit for this statement. But if you want to get technical G&D basically implicitly stated it when they first started practicing value investing at the Graham Newman Corp. I think when Munger stated it - it only had one exclamation point - but who knows - might have been three. Value investors (yes Buffett remarked that there really is no demarcation between growth and value - just a difference between investing and speculating) aren’t macroeconomists and generally take the “I don’t know and I don’t care” approach to forecasting macro variables. The approach is grounded in three basic principles: the view of the market (Mr. Market), perpetual inefficiencies as a means of exploiting Mr. Market, and an implicit margin of safety by looking for wide discrepancies between intrinsic value and price. Modern methods differ but generally G&D’ers focus first on asset values, then on earnings, and finally growth (since most aren’t willing to pay up for growth that may or may not materialize). This thread is just getting hijacked by mis-information.
‘Value investing’ is a heavily over-rated and misunderstood concept partly because of the Buffet legacy. Obviously, nobody can dispute the theoretical soundness of the ‘value’ style of investing. Sad thing is that one needs superior analytical skills or some other market edge to produce alpha by adopting this style. Most value managers are cocky idiots who thing the market is inefficient and only they can spot this inefficiency. They end up doubling down on worthless stocks only to realize their mistake several point lower before throwing in the towel. Case in point: ‘Value’ investors who doubled down on LEH, AIG, BSC and other defunct tickers…
I dont know if it is overrated per se, but I do think it receives a lot of press due to Buffett. I find G&D interesting but I think it is important to note changes that have occurred since 1940, namely how efficient or fast paced the market is compared to then. the principles will always make sense, but I think the execution is not as easy as it once may have been.
memalos Wrote: ------------------------------------------------------- > ‘Value investing’ is a heavily over-rated and > misunderstood concept partly because of the Buffet > legacy. Obviously, nobody can dispute the > theoretical soundness of the ‘value’ style of > investing. Sad thing is that one needs superior > analytical skills or some other market edge to > produce alpha by adopting this style. > > Most value managers are cocky idiots who thing the > market is inefficient and only they can spot this > inefficiency. They end up doubling down on > worthless stocks only to realize their mistake > several point lower before throwing in the towel. > > Case in point: ‘Value’ investors who doubled down > on LEH, AIG, BSC and other defunct tickers… Ehhhh…??? Let’s not generalize… what about those cocky ivy league idiots who decided it was a great idea to securitize dog crap? or the even cockier idiots who levered up to buy it? or what about those idiots at FoF’s who bought into Madoff? Or what if I took a space shuttle into the orbit or planet Mars