I like it. I think it makes sense. It probably still works. No, you can’t use the exact same methods as 1940 – that would be too easy. Just because some people misread investments (the banks) doesn’t mean it’s not sound methodology. You are talking about one year out of many. Don’t you think people can be irrational? You do read Bloomberg/WSJ, don’t you? How myopic are their views?
tvPM Wrote: ------------------------------------------------------- > 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. Agreed. Value investing is more than just Buffett and is practiced by a lot of famous and not so famous individuals. Walter Schloss is one of the oldest practictioners and early student of Graham, Tweedy Browne, Whitman, Greenblatt (and his friend Rich Pzena who got crushed), Pabrai, Klarman, then you get the distressed guys like GoldenTree’s Tannanbaum (totally botched his name), + tons other active market participants that add their own flavor. It’s a starting point and you have to really take a lot of views into account and decide for yourself. Markets change and methods change. It’s just as psychological as it is “rule based.” You have to evolve. Net nets are scarce today so you have to move further up in the balance sheet in determining asset values. Markets are more efficient but not “efficient” as academics coin it. And there is more than one way to make money in the markets - just depends on you’re view - which dictates your probability of successfully doing so.
Might I add that an element of value investing is humility as a character trait. Perhaps the original author of this thread should factor this into his posts. There many other ways to make money and many of them are respectable. Quants here? Congratulations, you have an edge, you apply higher level mathematics and are the envy of many. I’m not going to dismiss your strategies as aberrations if they work. That would be silly. All a value investor is trying to do is employ a certain method that can increase his chances of making money everytime he goes to make a bet by using (in my eyes) sound economic reasoning. Are you going to make bets that lose money? Of course, but hopefully your good bets outweigh the bad ones, and hopefully you have a long horizon and a strong mind. It doesn’t hurt to diversify either, especially if you’re afraid of overconfidence bias – which many value investors are guilty of.
“WillyR - Did you have any madoff exposure? You work a fund of funds, right?” No no, I left the FOF a while ago now. They had issues way issues. Amazingly though, we steered clear of Bernard Madoff, which somewhat shocks me given what I saw there. Willy
ValueAddict, Would you care shooting me an email at prefontainefund@gmail.com? I’m a value investor and wanted to throw a few questions your way if possible. Thanks
I would say that value investing is all about knowing the mechanics of working capital. Willy
Not quite willyr, value investing is all about adjusting the balance sheet to reflect economic reality (the higher up the balance sheet (i.e. working capital) the more critical the adjustments). Whereas, growth investing is all about correctly estimating future cashflows. A value investor prioritizes the balance sheet, the growth investor prioritizes the future cashflows. Benny G used to focus on net working capital of the balance sheet as a starting point for his screens.
Maybe someone can dig up the quote where Graham says he doesn’t use the techniques in “the book” anymore and just applies a simple cash flow screen to check stuff out. Also, funny someone mentions Dreman, when he’s chosen some stellar value picks like Wachovia, Wamu, Freddie Mac…
In Dreman’s case, it’s not the method that broke, it’s the execution. I remember a great wannabe value investor on this message board, virginCFAhooker (RIP), said that if you can’t adjust the balance sheet correctly/reasonably, then you just have to stay out. Find something else to do. Eat potato chips. Go surfing. I think he said that when Citibank was $26 and some people here were saying it was a no-brainer.
Value investing is based on the premise that market is not efficient and there are discrepancies to be exploited. But the problem is that those anomalies might not correct or even worsen or might not remain anomalies as new information arrives.
IARdude Wrote: ------------------------------------------------------- > Maybe someone can dig up the quote where Graham > says he doesn’t use the techniques in “the book” > anymore and just applies a simple cash flow screen > to check stuff out. > > Also, funny someone mentions Dreman, when he’s > chosen some stellar value picks like Wachovia, > Wamu, Freddie Mac… I was referring to the studies he cites in his books - Contrarian Investment strategies reprinted 20 x in different versions… those books contain a lot of footnotes on relevant studies that value metrics work over long periods of time. Was not using him as anything but - re-read
sameeragarwal Wrote: ------------------------------------------------------- > Value investing is based on the premise that > market is not efficient and there are > discrepancies to be exploited. But the problem is > that those anomalies might not correct or even > worsen or might not remain anomalies as new > information arrives. A lot more than just value investing involves trying to exploit market inefficiencies.