Value investing
Encyclopedia
Value investing is an investment
paradigm
that derives from the ideas on investment and speculation
that Ben Graham
and David Dodd
began teaching at Columbia Business School
in 1928 and subsequently developed in their 1934 text Security Analysis. Although value investing has taken many forms since its inception, it generally involves buying securities
whose shares
appear underpriced by some form of fundamental analysis
. As examples, such securities may be stock in public companies that trade at discounts to book value
or tangible book value
, have high dividend yield
s, have low price-to-earning multiples or have low price-to-book ratios.
High-profile proponents of value investing, including Berkshire Hathaway
chairman Warren Buffett
, have argued that the essence of value investing is buying stocks at less than their intrinsic value
. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety
". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. For the last 25 years, Warren Buffett has taken the value investing concept even further with a focus on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Value investing was established by Benjamin Graham
and David Dodd
, both professors at Columbia Business School
and teachers of many famous investors. In Graham's book The Intelligent Investor
, he advocated the important concept of margin of safety — first introduced in Security Analysis, a 1934 book he co-authored with David Dodd — which calls for a cautious approach to investing. In terms of picking stocks, he recommended defensive investment in stocks trading below their tangible book value as a safeguard to adverse future developments often encountered in the stock market.
is most useful in industries where most assets are tangible. Intangible assets such as patents, software, brands, or goodwill are difficult to quantify, and may not survive the break-up of a company. When an industry is going through fast technological advancements, the value of its assets is not easily estimated. Sometimes, the production power of an asset can be significantly reduced due to competitive disruptive innovation and therefore its value can suffer permanent impairment. One good example of decreasing asset value is a personal computer. An example of where book value does not mean much is the service and retail sectors. One modern model of calculating value is the discounted cash flow
model (DCF), where the value of an asset is the sum of its future cash flow
s, discounted back to the present.
, in his May 17, 1984 speech that was published as The Superinvestors of Graham-and-Doddsville
. In this speech, Buffett examined the performance of those investors who worked at Graham-Newman Corporation and were thus most influenced by Benjamin Graham. Buffett's conclusion is identical to that of the academic research on simple value investing strategies—value investing is, on average, successful in the long run.
During about a 25-year period (1965–90), published research and articles in leading journals of the value ilk were few. Warren Buffett once commented, "You couldn't advance in a finance department in this country unless you taught that the world was flat."
, a book that brought value investing to individual investors. Aside from Buffett, many of Graham's other students, such as William J. Ruane
, Irving Kahn
and Charles Brandes
have gone on to become successful investors in their own right.
Graham's most famous student, however, is Warren Buffett, who ran successful investing partnerships before closing them in 1969 to focus on running Berkshire Hathaway
. Charlie Munger
joined Buffett at Berkshire Hathaway in the 1970s and has since worked as Vice Chairman of the company. Buffett has credited Munger with encouraging him to focus on long-term sustainable growth rather than on simply the valuation of current cash flows or assets.
Columbia Business School has played a significant role in shaping the principles of the Value Investor, with professors and students making their mark on history and on each other. Ben Graham’s book, The Intelligent Investor, was Warren Buffett’s bible and he referred to it as "the greatest book on investing ever written.”
A young Warren Buffett studied under Prof. Ben Graham, took his course and worked for his small investment firm, Graham Newman, from 1954 to 1956. Twenty years after Ben Graham, Prof. Roger Murray arrived and taught value investing to a young student named Mario Gabelli
.
About a decade or so later, Prof. Bruce Greenwald
arrived and produced his own protégés, including Mr. Paul Sonkin—just as Ben Graham had Mr. Buffett as a protégé, and Roger Murray had Mr. Gabelli.
Mutual Series has a well known reputation of producing top value managers and analysts in this modern era. This tradition stems from two individuals: the late great value mind Max Heine
, founder of the well regarded value investment firm Mutual Shares fund in 1949 and his protégé legendary value investor Michael F. Price. Mutual Series was sold to Franklin Templeton in 1996. The disciples of Heine and Price quietly practice value investing at some of the most successful investment firms in the country.
Seth Klarman
is a Mutual Series alum and the founder and president of The Baupost Group, a Boston-based private investment partnership, authored Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, which since has become a value investing classic. Now out of print, Margin of Safety has sold on Amazon for $1,200 and eBay for $2,000. Another famous value investor is John Templeton
.
Martin J. Whitman
is another well-regarded value investor. His approach is called safe-and-cheap, which was hitherto referred to as financial-integrity approach. Martin Whitman focuses on acquiring common shares of companies with extremely strong financial position at a price reflecting meaningful discount to the estimated NAV of the company concerned. Martin Whitman believes it is ill-advised for investors to pay much attention to the trend of macro-factors (like employment, movement of interest rate, GDP, etc.) because they are not as important and attempts to predict their movement are almost always futile. Martin Whitman's letters to shareholders of his Third Avenue Value Fund (TAVF) are considered valuable resources "for investors to pirate good ideas" by another famous investor Joel Greenblatt
in his book on special-situation investment You Can Be a Stock Market Genius (ISBN 0-684-84007-3, pp 247).
Joel Greenblatt
achieved annual returns at the hedge fund Gotham Capital of over 50% per year for 10 years from 1985 to 1995 before closing the fund and returning his investors' money. He is known for investing in special situations such as spin-offs, mergers, and divestitures.
Charles de Vaulx
and Jean-Marie Eveillard
are well known global value managers. For a time, these two were paired up at the First Eagle Funds, compiling an enviable track record of risk-adjusted outperformance. For example, Morningstar designated them the 2001 "International Stock Manager of the Year" and de Vaulx earned second place from Morningstar for 2006. Eveillard is known for his Bloomberg appearances where he insists that securities investors never use margin or leverage. The point made is that margin should be considered the anathema of value investing, since a negative price move could prematurely force a sale. In contrast, a value investor must be able and willing to be patient for the rest of the market to recognize and correct whatever pricing issue created the momentary value. Eveillard correctly labels the use of margin or leverage as speculation
, the opposite of value investing.
Christopher H. Browne
of Tweedy, Browne
was well known for value investing. According to the Wall Street Journal, Tweedy, Browne
was the favorite brokerage firm of Benjamin Graham
during his lifetime; also, the Tweedy, Browne
Value Fund and Global Value Fund have both beat market averages since their inception in 1993.http://online.wsj.com/article/SB10001424052748703438404574598442025375858.html In 2006, Christopher H. Browne
wrote The Little Book of Value Investing
in order to teach ordinary investors how to value invest.http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470055898.html
Other notable value investors include: Whitney Tilson
, Mohnish Pabrai
, Li Lu
, Guy Spier
and Tom Gayner who manages the investment portfolio of Markel
Insurance
, as demonstrated in the late 1990s. Moreover, when value stocks perform well, it may not mean that the market is inefficient, though it may imply that value stocks are simply riskier and thus require greater returns.
An issue with buying shares in a bear market is that despite appearing undervalued at one time, prices can still drop along with the market. Conversely, an issue with not buying shares in a bull market is that despite appearing overvalued at one time, prices can still rise along with the market.
Another issue is the method of calculating the "intrinsic value". Two investors can analyze the same information and reach different conclusions regarding the intrinsic value of the company. There is no systematic or standard way to value a stock.
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
paradigm
Investor profile
An investor profile or style defines an individual's preferences in investment decisions, for example:* Short term trading or long term holding * Risk averse or risk tolerant / seeker...
that derives from the ideas on investment and speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
that Ben Graham
Benjamin Graham
Benjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
and David Dodd
David Dodd
David LeFevre Dodd was an American educator, financial analyst, author, economist, professional investor, and in his student years, a of, and as a postgraduate, close colleague of Benjamin Graham at Columbia Business School.The Wall Street Crash of 1929 almost wiped out Graham, who had started...
began teaching at Columbia Business School
Columbia Business School
Columbia Business School is the business school of Columbia University in Manhattan, New York City. It was established in 1916 to provide business training and professional preparation for undergraduate and graduate Columbia University students...
in 1928 and subsequently developed in their 1934 text Security Analysis. Although value investing has taken many forms since its inception, it generally involves buying securities
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
whose shares
Share (finance)
A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/shares of the company is called a shareholder, and by acquiring share or shares in...
appear underpriced by some form of fundamental analysis
Fundamental analysis
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and...
. As examples, such securities may be stock in public companies that trade at discounts to book value
Book value
In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's book value...
or tangible book value
Tangible Common Equity
Tangible Common Equity refers to the subset of shareholders' equity that is not preferred equity and not intangible assets.TCE is an uncommonly used measure of a company’s financial strength. It indicates how much ownership equity owners of common stock would receive in the event of a company’s...
, have high dividend yield
Dividend yield
The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...
s, have low price-to-earning multiples or have low price-to-book ratios.
High-profile proponents of value investing, including Berkshire Hathaway
Berkshire Hathaway
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...
chairman Warren Buffett
Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
, have argued that the essence of value investing is buying stocks at less than their intrinsic value
Intrinsic value (finance)
In finance, intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value...
. The discount of the market price to the intrinsic value is what Benjamin Graham called the "margin of safety
Margin of safety
Margin of safety is the difference between the intrinsic value of a stock and its market price..Another definition: In Break even analysis , margin of safety is how much output or sales level can fall before a business reaches its breakeven point.-History:Benjamin Graham and David Dodd, founders...
". The intrinsic value is the discounted value of all future distributions.
However, the future distributions and the appropriate discount rate can only be assumptions. For the last 25 years, Warren Buffett has taken the value investing concept even further with a focus on "finding an outstanding company at a sensible price" rather than generic companies at a bargain price.
Benjamin Graham
Benjamin Graham
Benjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
and David Dodd
David Dodd
David LeFevre Dodd was an American educator, financial analyst, author, economist, professional investor, and in his student years, a of, and as a postgraduate, close colleague of Benjamin Graham at Columbia Business School.The Wall Street Crash of 1929 almost wiped out Graham, who had started...
, both professors at Columbia Business School
Columbia Business School
Columbia Business School is the business school of Columbia University in Manhattan, New York City. It was established in 1916 to provide business training and professional preparation for undergraduate and graduate Columbia University students...
and teachers of many famous investors. In Graham's book The Intelligent Investor
The Intelligent Investor
The Intelligent Investor by Benjamin Graham, first published in 1949, is a widely acclaimed book on value investing, an investment approach Graham began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd...
, he advocated the important concept of margin of safety — first introduced in Security Analysis, a 1934 book he co-authored with David Dodd — which calls for a cautious approach to investing. In terms of picking stocks, he recommended defensive investment in stocks trading below their tangible book value as a safeguard to adverse future developments often encountered in the stock market.
Further evolution
However, the concept of value (as well as "book value") has evolved significantly since the 1970s. Book valueBook value
In accounting, book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or Impairment costs made against the asset. Traditionally, a company's book value...
is most useful in industries where most assets are tangible. Intangible assets such as patents, software, brands, or goodwill are difficult to quantify, and may not survive the break-up of a company. When an industry is going through fast technological advancements, the value of its assets is not easily estimated. Sometimes, the production power of an asset can be significantly reduced due to competitive disruptive innovation and therefore its value can suffer permanent impairment. One good example of decreasing asset value is a personal computer. An example of where book value does not mean much is the service and retail sectors. One modern model of calculating value is the discounted cash flow
Discounted cash flow
In finance, discounted cash flow analysis is a method of valuing a project, company, or asset using the concepts of the time value of money...
model (DCF), where the value of an asset is the sum of its future cash flow
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
s, discounted back to the present.
Performance of value strategies
Value investing has proven to be a successful investment strategy. There are several ways to evaluate its success. One way is to examine the performance of simple value strategies, such as buying low PE ratio stocks, low price-to-cash-flow ratio stocks, or low price-to-book ratio stocks. Numerous academics have published studies investigating the effects of buying value stocks. These studies have consistently found that value stocks outperform growth stocks and the market as a whole.Performance of value investors
Another way to examine the performance of value investing strategies is to examine the investing performance of well-known value investors. Simply examining the performance of the best known value investors would not be instructive, because investors do not become well known unless they are successful. This introduces a selection bias. A better way to investigate the performance of a group of value investors was suggested by Warren BuffettWarren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is...
, in his May 17, 1984 speech that was published as The Superinvestors of Graham-and-Doddsville
The Superinvestors of Graham-and-Doddsville
"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984 issue of Hermes, Columbia Business School magazine...
. In this speech, Buffett examined the performance of those investors who worked at Graham-Newman Corporation and were thus most influenced by Benjamin Graham. Buffett's conclusion is identical to that of the academic research on simple value investing strategies—value investing is, on average, successful in the long run.
During about a 25-year period (1965–90), published research and articles in leading journals of the value ilk were few. Warren Buffett once commented, "You couldn't advance in a finance department in this country unless you taught that the world was flat."
Well-known value investors
Benjamin Graham is regarded by many to be the father of value investing. Along with David Dodd, he wrote Security Analysis, first published in 1934. The most lasting contribution of this book to the field of security analysis was to emphasize the quantifiable aspects of security analysis (such as the evaluations of earnings and book value) while minimizing the importance of more qualitative factors such as the quality of a company's management. Graham later wrote The Intelligent InvestorThe Intelligent Investor
The Intelligent Investor by Benjamin Graham, first published in 1949, is a widely acclaimed book on value investing, an investment approach Graham began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd...
, a book that brought value investing to individual investors. Aside from Buffett, many of Graham's other students, such as William J. Ruane
William J. Ruane
William J. Ruane was a Wall Street investment manager and philanthropist....
, Irving Kahn
Irving Kahn
Irving Kahn is an American value investor and money manager and the oldest living investment professional. He was an early disciple of Benjamin Graham, the creator of the value investing methodology. Kahn began his career in 1928 and continues to work to this day at the age of...
and Charles Brandes
Charles Brandes
Charles H. Brandes is one of the more closely followed value investors working today, as well being a disciple of the Benjamin Graham school of value investing. Brandes Investment Partners, which was started in 1974, currently has over $52.9 billion under management and is based in San Diego,...
have gone on to become successful investors in their own right.
Graham's most famous student, however, is Warren Buffett, who ran successful investing partnerships before closing them in 1969 to focus on running Berkshire Hathaway
Berkshire Hathaway
Berkshire Hathaway Inc. is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States, that oversees and manages a number of subsidiary companies. The company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years,...
. Charlie Munger
Charlie Munger
Charles Thomas Munger is an American business magnate, lawyer, investor, and philanthropist. He is Vice-Chairman of Berkshire Hathaway Corporation, the diversified investment corporation chaired by Warren Buffett; in that capacity, Buffett describes Munger as "my partner." Munger is also the...
joined Buffett at Berkshire Hathaway in the 1970s and has since worked as Vice Chairman of the company. Buffett has credited Munger with encouraging him to focus on long-term sustainable growth rather than on simply the valuation of current cash flows or assets.
Columbia Business School has played a significant role in shaping the principles of the Value Investor, with professors and students making their mark on history and on each other. Ben Graham’s book, The Intelligent Investor, was Warren Buffett’s bible and he referred to it as "the greatest book on investing ever written.”
A young Warren Buffett studied under Prof. Ben Graham, took his course and worked for his small investment firm, Graham Newman, from 1954 to 1956. Twenty years after Ben Graham, Prof. Roger Murray arrived and taught value investing to a young student named Mario Gabelli
Mario Gabelli
Mario Joseph Gabelli is an American stock investor, investment advisor, and financial analyst. He is the founder, chairman, and CEO of Gabelli Asset Management Company Investors a $30 billion dollar global investment firm headquartered in Rye, New York...
.
About a decade or so later, Prof. Bruce Greenwald
Bruce Greenwald
Bruce Corman Norbert Greenwald OP, , is a professor at Columbia University's Graduate School of Business and Director of Research at FirstEagle Funds. He is, among others, the author of the books Value Investing: from Graham to Buffett and Beyond and Competition Demystified: A Radically Simplified...
arrived and produced his own protégés, including Mr. Paul Sonkin—just as Ben Graham had Mr. Buffett as a protégé, and Roger Murray had Mr. Gabelli.
Mutual Series has a well known reputation of producing top value managers and analysts in this modern era. This tradition stems from two individuals: the late great value mind Max Heine
Max Heine
Max L. Heine was a value investor and fund manager in New York.-Biography:A Jewish law student in Berlin, Max fled Nazi Germany in the late 1930s for New York, where he found work in a department store...
, founder of the well regarded value investment firm Mutual Shares fund in 1949 and his protégé legendary value investor Michael F. Price. Mutual Series was sold to Franklin Templeton in 1996. The disciples of Heine and Price quietly practice value investing at some of the most successful investment firms in the country.
Seth Klarman
Seth Klarman
Seth Klarman is the founder and president of the Baupost Group, a Boston-based private investment partnership, and the author of a book on value investing.-Career:...
is a Mutual Series alum and the founder and president of The Baupost Group, a Boston-based private investment partnership, authored Margin of Safety, Risk Averse Investing Strategies for the Thoughtful Investor, which since has become a value investing classic. Now out of print, Margin of Safety has sold on Amazon for $1,200 and eBay for $2,000. Another famous value investor is John Templeton
John Templeton
Sir John Marks Templeton was an American-born British stock investor, businessman and philanthropist.-Biography:...
.
Martin J. Whitman
Martin J. Whitman
Martin J. Whitman is an American investment advisor and a strong critic of the direction of recent changes in Generally Accepted Accounting Principles in the U.S...
is another well-regarded value investor. His approach is called safe-and-cheap, which was hitherto referred to as financial-integrity approach. Martin Whitman focuses on acquiring common shares of companies with extremely strong financial position at a price reflecting meaningful discount to the estimated NAV of the company concerned. Martin Whitman believes it is ill-advised for investors to pay much attention to the trend of macro-factors (like employment, movement of interest rate, GDP, etc.) because they are not as important and attempts to predict their movement are almost always futile. Martin Whitman's letters to shareholders of his Third Avenue Value Fund (TAVF) are considered valuable resources "for investors to pirate good ideas" by another famous investor Joel Greenblatt
Joel Greenblatt
Joel Greenblatt is a value investor, and adjunct professor at the Columbia University Graduate School of Business...
in his book on special-situation investment You Can Be a Stock Market Genius (ISBN 0-684-84007-3, pp 247).
Joel Greenblatt
Joel Greenblatt
Joel Greenblatt is a value investor, and adjunct professor at the Columbia University Graduate School of Business...
achieved annual returns at the hedge fund Gotham Capital of over 50% per year for 10 years from 1985 to 1995 before closing the fund and returning his investors' money. He is known for investing in special situations such as spin-offs, mergers, and divestitures.
Charles de Vaulx
Charles de Vaulx
Charles de Vaulx is a French-born asset manager , noted for his value investing in the spirit of Graham and Dodd.-Background and history:...
and Jean-Marie Eveillard
Jean-Marie Eveillard
Jean-Marie Eveillard is a French-born international investor who currently serves as the senior investment adviser to First Eagle Funds. Eveillard, who served more than a quarter century as a portfolio manager, was co-honored in 2001 by Morningstar, Inc. as "Stock Manager of the Year" and was a...
are well known global value managers. For a time, these two were paired up at the First Eagle Funds, compiling an enviable track record of risk-adjusted outperformance. For example, Morningstar designated them the 2001 "International Stock Manager of the Year" and de Vaulx earned second place from Morningstar for 2006. Eveillard is known for his Bloomberg appearances where he insists that securities investors never use margin or leverage. The point made is that margin should be considered the anathema of value investing, since a negative price move could prematurely force a sale. In contrast, a value investor must be able and willing to be patient for the rest of the market to recognize and correct whatever pricing issue created the momentary value. Eveillard correctly labels the use of margin or leverage as speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
, the opposite of value investing.
Christopher H. Browne
Christopher H. Browne
Christopher H. Browne was a famous value investor. He graduated from the University of Pennsylvania in 1969 with a B.A. in history. He then joined the firm Tweedy, Browne, a favorite brokerage firm among prominent value investors like Benjamin Graham and Warren Buffett...
of Tweedy, Browne
Tweedy, Browne
Tweedy, Browne Company LLC is an American investment advisory and fund management firm founded in 1920. It currently manages almost 6 billion US dollars in separate accounts and three mutual funds. All of the funds are managed in accordance to the principles of Value Investing as popularized by...
was well known for value investing. According to the Wall Street Journal, Tweedy, Browne
Tweedy, Browne
Tweedy, Browne Company LLC is an American investment advisory and fund management firm founded in 1920. It currently manages almost 6 billion US dollars in separate accounts and three mutual funds. All of the funds are managed in accordance to the principles of Value Investing as popularized by...
was the favorite brokerage firm of Benjamin Graham
Benjamin Graham
Benjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
during his lifetime; also, the Tweedy, Browne
Tweedy, Browne
Tweedy, Browne Company LLC is an American investment advisory and fund management firm founded in 1920. It currently manages almost 6 billion US dollars in separate accounts and three mutual funds. All of the funds are managed in accordance to the principles of Value Investing as popularized by...
Value Fund and Global Value Fund have both beat market averages since their inception in 1993.http://online.wsj.com/article/SB10001424052748703438404574598442025375858.html In 2006, Christopher H. Browne
Christopher H. Browne
Christopher H. Browne was a famous value investor. He graduated from the University of Pennsylvania in 1969 with a B.A. in history. He then joined the firm Tweedy, Browne, a favorite brokerage firm among prominent value investors like Benjamin Graham and Warren Buffett...
wrote The Little Book of Value Investing
The Little Book of Value Investing
The Little Book of Value Investing is a book that was written by Christopher H. Browne in 2006 in order to teach ordinary investors how to value invest. The book's ISBN is 0470055898....
in order to teach ordinary investors how to value invest.http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470055898.html
Other notable value investors include: Whitney Tilson
Whitney Tilson
Whitney Tilson is an author, investor and businessman who also writes for financial publications.Tilson is a disciple of the Graham-Dodd -Buffett-Munger school of value investing, and was one of the authors of Poor Charlie's Almanack , considered by many to be the definitive book on Charlie...
, Mohnish Pabrai
Mohnish Pabrai
Mohnish Pabrai is an Indian-American businessman, investor and philanthropist. In his Pabrai Investment Fund, which is a family of hedge funds inspired by Buffett Partnerships, he successfully manages over 500 mln of assets and consistently achieves overaverage rates of return.In June 2007 he made...
, Li Lu
Li Lu
Li Lu is a Chinese-American investment banker and fund manager. He is the founder and Chairman of Himalaya Capital Management...
, Guy Spier
Guy Spier
Guy Spier is a Zurich based investor, and commentator. In June 2007 he made headlines by bidding US$650,100 with Mohnish Pabrai for a charity lunch with Warren Buffett...
and Tom Gayner who manages the investment portfolio of Markel
Markel
Markel Corporation is an insurance holding company.Never declaring a stock split, their stock has risen from $8.33 per share in its 1986 IPO to over $350 a share in 2010. Their book value per share has risen from $3.42 in 1986 to $282.55 in 2009, which is a compound annual growth rate of...
Insurance
Criticism
Value stocks do not always beat growth stocksGrowth investing
Growth investing is a style of investment strategy. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios...
, as demonstrated in the late 1990s. Moreover, when value stocks perform well, it may not mean that the market is inefficient, though it may imply that value stocks are simply riskier and thus require greater returns.
An issue with buying shares in a bear market is that despite appearing undervalued at one time, prices can still drop along with the market. Conversely, an issue with not buying shares in a bull market is that despite appearing overvalued at one time, prices can still rise along with the market.
Another issue is the method of calculating the "intrinsic value". Two investors can analyze the same information and reach different conclusions regarding the intrinsic value of the company. There is no systematic or standard way to value a stock.
Value investing books and resources
- Security Analysis, editions 1934, 1940, 1951 and 1962 and 1988 and 2008 ISBN 978-0-07-159253-6
- "Value Investing Made Easy," Janet Lowe, McGraw-Hill. ISBN 978-0070388642
- The Theory of Investment Value (1938), by John Burr WilliamsJohn Burr WilliamsJohn Burr Williams , one of the first economists to view stock prices as determined by “intrinsic value”, is recognised as a founder and developer of fundamental analysis. He is best known for his 1938 text "The Theory of Investment Value", based on his Ph.D...
. ISBN 0-87034-126-X - The Intelligent InvestorThe Intelligent InvestorThe Intelligent Investor by Benjamin Graham, first published in 1949, is a widely acclaimed book on value investing, an investment approach Graham began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd...
(1949), by Benjamin GrahamBenjamin GrahamBenjamin Graham was an American economist and professional investor. Graham is considered the first proponent of value investing, an investment approach he began teaching at Columbia Business School in 1928 and subsequently refined with David Dodd through various editions of their famous book...
. ISBN 0-06-055566-1 - You Can Be a Stock Market Genius (1997), by Joel GreenblattJoel GreenblattJoel Greenblatt is a value investor, and adjunct professor at the Columbia University Graduate School of Business...
. ISBN 0-684-84007-3. - Contrarian Investment Strategies: The Next Generation (1998), by David DremanDavid DremanDavid Dreman is a noted investor, who founded and is Chairman of Dreman Value Management, an investment company. The company focuses on the assets of mutual funds, pension, foundation, and endowment funds, as well as high net-worth individuals....
. ISBN 0-684-81350-5. - The Essays of Warren Buffett (2001), edited by Lawrence A. Cunningham. ISBN 0-9664461-1-9.
- The Little Book That Beats the Market (2006), by Joel GreenblattJoel GreenblattJoel Greenblatt is a value investor, and adjunct professor at the Columbia University Graduate School of Business...
. ISBN 0-471-73306-7. - The Little Book of Value Investing (2006), by Chris Browne. ISBN 0-470-05589-8.
- Value Investors Club
- Value Investor Insight (www.valueinvestorinsight.com)
- "The Rediscovered Benjamin Graham - selected writings of the wall street legend," by Janet Lowe. John Wiley & Sons
- "Benjamin Graham on Value Investing," Janet Lowe, Dearborn
See also
- Contrarian investingContrarian investingIn finance, a contrarian is one who attempts to profit by investing in a manner that differs from the conventional wisdom, when the consensus opinion appears to be wrong....
- Index investing
- Graham numberGraham numberNote that this number applies only to certain types of stocks in combination with a number of other criteria. The complete Graham selection procedure is much more elaborate. No decision should be made based on this number alone....
- Growth investingGrowth investingGrowth investing is a style of investment strategy. Those who follow this style, known as growth investors, invest in companies that exhibit signs of above-average growth, even if the share price appears expensive in terms of metrics such as price-to-earnings or price-to-book ratios...
- Quality investingQuality investingQuality investing is an investment strategy based on clearly defined fundamental factors that seeks to identify companies with outstanding quality characteristics. The quality assessment is made based on soft and hard criteria...
- AppreciationAppreciationIn accounting, appreciation of an asset is an increase in its value. In this sense it is the reverse of depreciation, which measures the fall in value of assets over their normal life-time...
- Capital accumulationCapital accumulationThe accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
- Financial economicsFinancial economicsFinancial Economics is the branch of economics concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment"....
- Magic Formula InvestingMagic Formula InvestingMagic Formula Investing is a term that refers to an investment technique outlined by Joel Greenblatt that uses the principles of value investing.-Methodology:...
- Joseph PiotroskiJoseph PiotroskiJoseph D. Piotroski is an American professor who specializes in accounting and financial reporting issues. As of October 2010 he serves as associate professor of accounting at the Stanford University Graduate School of Business...
- Investment managementInvestment managementInvestment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
- Investor profileInvestor profileAn investor profile or style defines an individual's preferences in investment decisions, for example:* Short term trading or long term holding * Risk averse or risk tolerant / seeker...
- Investor relationsInvestor relationsInvestor Relations is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two-way communication between a company, the financial community, and other constituencies, which ultimately contributes to a...
- Momentum investingMomentum investingMomentum investing, also sometimes known as "Fair Weather Investing", is a system of buying stocks or other securities that have had high returns over the past three to twelve months, and selling those that have had poor returns over the same period...
- Return on investmentReturn on investmentReturn on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...
- SavingSaving (money)Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in a bank or pension plan. Saving also includes reducing expenditures, such as recurring costs...
- SpeculationSpeculationIn finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
- Stock investor
- Value (economics)Value (economics)An economic value is the worth of a good or service as determined by the market.The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods...
- Value averagingValue averagingValue averaging, also known as dollar value averaging , is a technique of adding to an investment portfolio to provide greater return than similar methods such as dollar cost averaging and random investment. It was developed by former Harvard University professor Michael E. Edleson...
Value Investors at Wikiquote
- Warren Buffett
- Benjamin Graham
- Joel Greenblatt