The Triumph of Value Investing

SKU:
$0.00
Unavailable
per item

Value investing involves fundamental analysis al by with the concept of looking for a margin of safety.


A value investor lived and invests by three guiding principles:

  1. Having the right attitude
  2. Margin of safety
  3. Determining intrinsic value


Value investor are cognizant of market swings, but they do not play the market.


Value investing is a hunt for securities selling for below their intrinsic value, which are then held until given a compelling reason to sell.


The balance sheet will give indications of safety, while the income statement will give clues to future growth.


Benjamin Graham saw the margin of safety in three primary areas:

  1. The valuation of assets
  2. Analysis of earning power
  3. Diversification


The margin of safety can also be found in a substantial stash of corporate working capital, strong positive cash flow, and a company’s consistently strong dividend history.


Even those successful at high-frequency trading are likely to underperform someone who simply buys undervalued companies and holds them.


The sooner you need to use your investment money, the more conservative you should be.


Beta measures volatility relative to a benchmark index, which is useful metric, but it often distracts investors from focusing on real value.


Basic rules of investing:

  1. Don’t use money needed for daily living expenses.
  2. Set a dollar limit for you maximum loss.
  3. Don’t keep chasing losses.
  4. Set aside profits for other purposes.


The balance sheet is where you find quality and stability, the income statement is where you find growth.


A balance sheet includes assets, debt, cash holdings, and equity positions (including dividends).


Book value is nothing more than assets minus liabilities.


Earnings is the only growth rate that counts.


Wall balance sheet is a snapshot of a company, The income statement represents a company’s vitality.


A one-time event only helps an investor if it is used to do one of three things:

  1. Restore the asset base
  2. Reduce debts/cost of doing business
  3. Contribute to future earnings


There are five basic ways a company can increase earnings:

  1. Reduce costs
  2. Raise prices
  3. Expand into new markets
  4. Sell more in the existing markets
  5. Revitalize or dispose of losing operations.


Assets as indicated by book value represent a minimum price at which a company should sell, whereas a P/E ratio represents the upper bound of price at which a company should sell.


This to remember as an investor:

  1. The companies most attractive to investors are those with consistent profitability.
  2. Look for a steady upward trend in earnings
  3. Look for a P/E that is low compared to others in the same industry.
  4. When making estimates, be contrastive. Underestimation provides a margin of safety.


You should only buy a stock if you like it more than everything else you already own.


Investors have to pay taxes on dividends even if they are automatically reinvested.


A preferred share is a hybrid between a stock and a bond between in that it has the 2nd claim (after bond holders but before shareholders) on liquidated assets/repayment upon default.


Investing rules to live by:

  1. Have the right attitude about risk.
  2. Ignore predictions and projections.
  3. Stick to the facts, not personal opinion.
  4. When everyone is in one area, it’s good to be somewhere else.
  5. Steer clear of leverage.
  6. Embrace volatility.
  7. Follow the sailor within, not the other boats.
  8. Step back from a smoking hot market.
  9. Diversify.
  10. Inflation happens. Be ready for it.
  11. Accept you’ll make mistakes.
  12. Have a good time.


When buying stocks, insist on the following:

  1. An attractive price-to-earnings ratio.
  2. A price near or below book value.
  3. A price well below the previous high.
  4. A P/E lower than the 7- to 10-year average.
  5. A suitable dividend yield.