Author Topic: Value Investing  (Read 2031 times)

Alchemisst

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Value Investing
« on: March 30, 2019, 07:30:19 PM »
I have been using/ following value investing principles for a long time and to me it makes sense to invest this way, especially in an over inflated market. If you could build a portfolio of good value stocks at good prices rather than all the bad stocks that come with the good in the index, even a couple of % better return than the index would compound to a huge amount as we know. Is anyone here doing this for a portion of their portfolio?

EvenSteven

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Re: Value Investing
« Reply #1 on: April 01, 2019, 12:58:30 PM »
If I could tell the "good" stocks from the "bad" stocks ahead of time, I would pick individual stocks instead of indexing.

Alas, I cannot. So I get what the market gives me.

Cries

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Re: Value Investing
« Reply #2 on: April 01, 2019, 01:35:46 PM »
The vast majority of my IRAs and taxable funds are invested in 4 names.  I am value investor by trade at a large asset manager/PE fund. 

I also have equity index funds in my 401k, as well as leveraged loan & MM index funds for my dry powder in my brokerage accounts.  Been hard to find good names lately. 

Compounded at over 30% annually since inception for my single-name portfolio (2012), with a couple very large drawdowns that I had to hold through (some years up 100%; some years down 10%; but still a 33% CAGR since 2012) - the market doesnt really understand the names that I invest in, nor does it price new information for them very efficiently. 

I invest in 1 new name per year for my own accounts, on average.  Average hold is 2-3 years, but most of my past investments got taken out through sale to private equity - so I have rarely sold investments. 
« Last Edit: April 01, 2019, 02:04:52 PM by Cries »

SwitchActiveDWG

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Re: Value Investing
« Reply #3 on: April 01, 2019, 01:56:29 PM »
If I could tell the "good" stocks from the "bad" stocks ahead of time, I would pick individual stocks instead of indexing.

Alas, I cannot. So I get what the market gives me.

This. Added perks are the extremely low fees and near zero time commitment to implement this strategy.

Stimpy

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Re: Value Investing
« Reply #4 on: April 01, 2019, 03:12:24 PM »
I am sorta doing this.  Though I do it for dividends, and not straight value but value has a big part in what I invest in.  To date it has worked out well for me.  Though only time will tell as I only really started building the portfolio like this roughly 7 years ago.   Take my success with a gain of salt till proven otherwise.

That being said I am a strong supporter of ETFs/Indexing, and HIGHLY recommend people invest in those unless they want to take the time to learn.  (Most people would rather do other things, which is great!  Do what you enjoy!)
« Last Edit: April 01, 2019, 03:19:23 PM by stimepy »

MustacheAndaHalf

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Re: Value Investing
« Reply #5 on: April 01, 2019, 10:37:12 PM »
Larry Swedroe's books suggest a "value tilt", so you might read up on that.  From what I recall, the value effect was stronger internationally than in the U.S., but that might have been influenced by the tech boom.  Then again... has the tech boom ended?  All of the top 5 companies in the S&P 500 are tech companies (yes I see #5 is BRK.A, but BOTH #7 and #8 are Alphabet (Google), which would put it above Facebook to be the #4 holding).  Maybe it's reassuring to have Warren Buffet right on the tail of those top 5 tech companies?

I'd still recommend using an index fund / ETF, just with a value tilt.  That ensures diversification, where buying a few individual value stocks would not.  I found it useful to look on morningstar, where each fund / ETF gets allocated to a "style box" which separates into large/mid/small and value/blend/growth.  It also shows price/book and P/E ratio in case you want to find those in one place.

Car Jack

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Re: Value Investing
« Reply #6 on: April 02, 2019, 06:41:10 AM »
Before he died, Jack Bogle did an interview that I watched that was quite good.  In it he addressed small value because it's become the trendy thing to invest in recently.  What he said was that small value started with overperformance for a very, very short time, but then as investors got more into it, the price to get in went up, making it simply matching the market.  As time went on, more people heard about it and blindly went in.  Now, it underperforms.

His point?  Buy the whole freaking market.  You then get market returns.  Any tilting, slicing, and other nonsense is nothing more than speculation.  You might do better with value now.  In a year, it could underperform.  The more of Jack's wisdom I hear, the more I believe he was absolutely right.  Thinking you know more than the rest of the market will do nothing but guaranty that you will underperform the market.


CorpRaider

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Re: Value Investing
« Reply #7 on: April 02, 2019, 09:48:06 AM »
Yeah, I try to do it with ~5% of my portfolio.  I enjoy it.  I also have a bit of a value tilt in the indexed portion via some factor funds.  Has been a rough go since the financial crisis. 
« Last Edit: April 02, 2019, 09:52:03 AM by CorpRaider »

MustacheAndaHalf

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Re: Value Investing
« Reply #8 on: April 02, 2019, 11:11:29 AM »
That reminds me, if anyone in this thread is motivated by Warren Buffet, it's worth checking out the AQR academic paper that decodes how Buffet invests.  Besides being a value investor, Buffet invests in companies with good "profitability" and "investibility" - those odd words are actually factors in academic models of the stock market.  They went undiscovered by everyone - except Warren Buffet - for decades.  And finally, Warren Buffet's insurance business provides him very cheap leverage, which he uses to amplify returns.  Just "value investing" will not produce the same results as Warren Buffet.

x8855227

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Re: Value Investing
« Reply #9 on: April 02, 2019, 07:53:38 PM »
Alchemisst and Cries, I am very interested in value investing and just start the journey.  Can you please share some experience on how to do the company fundamental analysis?  What information resource for analyst reports on company and on industries?  What investors' forum are good for value investing?   

Thank you and I hope to learn from value investors.

vand

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Re: Value Investing
« Reply #10 on: April 03, 2019, 03:57:54 AM »
I still believe that value investing can beat the market over time.. its just that the last few years the strategy has fallen out of favour as investors have chased growth stocks, and so has underperformed. This is not unheard of; no strategy can beat the market all the time, and when they undergo such periods people always question them.

this is an interesting read:
https://seekingalpha.com/article/3987114-predicting-stock-market-returns-using-shiller-cape-pb

page 6:

"In the period between 1871 and 2016, earnings growth in the S&P 500 and the returns of the following 15 years showed a much lower correlation (Rē 0.16 - correlation 0.40, Figure 7). This shows that CAPE and PB enable significantly more reliable long-term forecasts than correctly estimated long-term earnings growth rates for the subsequent 15 years."


translation: it's human nature to overrate growth and under-appreciate value... which is why the value investing advantage has persisted for so long. Tomorrow's growth is not assured.. successful companies will always face relentless competition that see their profitability eroded and eventually means revert over time
« Last Edit: April 03, 2019, 04:02:33 AM by vand »

vand

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Re: Value Investing
« Reply #11 on: April 03, 2019, 04:09:51 AM »
I would also say that true value investors still do the time honoured tradition of balance sheet analysis, which is much of what Graham/Dodd wrote all those years ago. How many of us do that nowadays? Virtually zero, I would say.

If as an investor you can't be bothered to do that, you shouldn't complain that you can't beat the market.

UnleashHell

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Re: Value Investing
« Reply #12 on: April 03, 2019, 04:13:00 AM »
one of the best value investment forums out there is corner of berkshire and fairfax

you'll learn a lot more there about value investments.


I used to when I had much more time to actually read annual reports and balance sheets  - now that I don't have that time I index.

Cries

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Re: Value Investing
« Reply #13 on: April 03, 2019, 11:12:25 AM »
Alchemisst and Cries, I am very interested in value investing and just start the journey.  Can you please share some experience on how to do the company fundamental analysis?  What information resource for analyst reports on company and on industries?  What investors' forum are good for value investing?   

Thank you and I hope to learn from value investors.

Value Investors Club is the one-and-only site you need.  Go read some value books as well - they will point you in the right direction.  Start with: "You Can Be a Stock Market Genius" and "Margin of Safety" by Klarman.  Go read a few dozen highly-rated cases on Value Investors Club + all of the comments. 

Unclear to me where you are in life - but it would help if you get a job in the real world (or start a business) to understand how businesses/operations actually work. 


CorpRaider

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Re: Value Investing
« Reply #14 on: April 03, 2019, 12:12:25 PM »
You liked margin of safety?  Interesting.  I'm only about half way though with it and was about to give up.  I will try and soldier on.

RE: balance sheet analysis, I hear you but as I'm sure you know the argument is that modern service based companies with tons of intangibles don't readily lend themselves to that sort of analysis.  I sort of buy that.
« Last Edit: April 03, 2019, 12:25:21 PM by CorpRaider »

x8855227

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Re: Value Investing
« Reply #15 on: April 03, 2019, 08:03:02 PM »
Thanks Cries and  others for the suggestion.   I have read enough value investing books and believe now is the time to practice the corporate foundmantel analysis. Also, corporate analysis is far from financial statement analysis, it is all about future insight.
 

My problem is need to establish a systematic corporate analysis methodology. I want to start from pre-select stock pools with certain quantitative threshold, like ROE, P/E etc. But when I try to do the qualitative analysis, I found it is difficult to find good quality analyst reports for the company and the industry.  Vanguard/Fidelity have various analyst reports, but majority of them just compile quantitative index together and make forecast based on that, which I think is far from enough.


If I want to check company's competitiveness, and the whole market capacity of certain industries, I can not find any reliable resource, no matter free or fee based. I am also looking for detailed value investors' experience share including the investment system build and the recommended information sources. 

 Thanks.

CorpRaider

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Re: Value Investing
« Reply #16 on: April 04, 2019, 07:32:43 AM »
The GOATs have mentioned their fondness for Valueline.  Probably not a bad starting place.  You can probably get it through your library.

Cries

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Re: Value Investing
« Reply #17 on: April 04, 2019, 07:39:43 AM »
Thanks Cries and  others for the suggestion.   I have read enough value investing books and believe now is the time to practice the corporate foundmantel analysis. Also, corporate analysis is far from financial statement analysis, it is all about future insight.
 

My problem is need to establish a systematic corporate analysis methodology. I want to start from pre-select stock pools with certain quantitative threshold, like ROE, P/E etc. But when I try to do the qualitative analysis, I found it is difficult to find good quality analyst reports for the company and the industry.  Vanguard/Fidelity have various analyst reports, but majority of them just compile quantitative index together and make forecast based on that, which I think is far from enough.


If I want to check company's competitiveness, and the whole market capacity of certain industries, I can not find any reliable resource, no matter free or fee based. I am also looking for detailed value investors' experience share including the investment system build and the recommended information sources. 

 Thanks.

I dont really use analyst reports.  My top 3 resources in order of time spent:
1) endless googling for articles/interviews/regulations/opinions on the industry & specific competitors.  I generally dont know what Im looking for when I do this & have no idea what I will find.  I spend days just googling random search terms that are tangentially related to the target, then just seeing what I find - then will focus on anything that I think are value drivers or particularly interesting about the business/industry. 
2) Quarterly transcripts and quarterly 8-Ks.  Read them all yourself.  Go back a few years.  Do the same for the major competitors.  The theme here is that we arent relying on analyst reports or third parties - we are relying on your own hard work to read/understand the primary-source materials & form your own opinions w/o the influence of analysts/researchers/publishers (thats how you come up with a differentiated view in the first place).  Once you can differentiate between the different companies & understand why their performance is diverges from the peer set, then you have almost read enough.  If you cant differentiate, then repeat step1 and step2 again until you can.
3) Finally, after we have maxed-out on step1 & 2, above, we move on to expert networks (such as Third Bridge or GLG).  Here we get to talk one-on-one with ex-employees or ex-management to understand how the companies/industry operate from an the employees perspective.  We only talk to former execs, so they dont have/share any up-to-date insider info.  We are just trying to understand the operations from their perspective. 

J Boogie

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Re: Value Investing
« Reply #18 on: April 04, 2019, 09:49:27 AM »
I prefer to look at the inverse - where is the dumb money going, so I can limit my exposure to it?

A lot of dumb money is going into real estate, crypto, TSLA, and pre-earnings stocks. There are plenty of pre-earnings stocks that will be great companies no doubt, but Amazon's success story has created in my opinion a bit of a celebrity effect - where even though there can only be 1 Michael Jordan, there are hundreds of thousands of kids convinced they will be the next Michael Jordan. But instead there are 100,000 investors convinced that Square will be the next 10 bagger.

I would never short dumb money investments, because the cult like belief of the longs can quite easily outlast my position. What these investments lack in intrinsic value creation they can make up for in cash inflows from foolish investors.

So rather than be long or short, I'd rather just have nothing to do with them. You could argue there is decent evidence of dumb money in the overall stock market based on historical shiller PE averages, which says the stock market is quite expensive right now... but you could also argue the stock market isn't expensive, capital is cheap.

And indeed it is, artificially so, which would mean that perhaps our stock market is in turn artificially expensive. So it's understandable that we would scour the market for stocks that are a relatively good deal.




x8855227

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Re: Value Investing
« Reply #19 on: April 04, 2019, 08:34:04 PM »
Thanks Cries and  others for the suggestion.   I have read enough value investing books and believe now is the time to practice the corporate foundmantel analysis. Also, corporate analysis is far from financial statement analysis, it is all about future insight.
 

My problem is need to establish a systematic corporate analysis methodology. I want to start from pre-select stock pools with certain quantitative threshold, like ROE, P/E etc. But when I try to do the qualitative analysis, I found it is difficult to find good quality analyst reports for the company and the industry.  Vanguard/Fidelity have various analyst reports, but majority of them just compile quantitative index together and make forecast based on that, which I think is far from enough.


If I want to check company's competitiveness, and the whole market capacity of certain industries, I can not find any reliable resource, no matter free or fee based. I am also looking for detailed value investors' experience share including the investment system build and the recommended information sources. 

 Thanks.

I dont really use analyst reports.  My top 3 resources in order of time spent:
1) endless googling for articles/interviews/regulations/opinions on the industry & specific competitors.  I generally dont know what Im looking for when I do this & have no idea what I will find.  I spend days just googling random search terms that are tangentially related to the target, then just seeing what I find - then will focus on anything that I think are value drivers or particularly interesting about the business/industry. 
2) Quarterly transcripts and quarterly 8-Ks.  Read them all yourself.  Go back a few years.  Do the same for the major competitors.  The theme here is that we arent relying on analyst reports or third parties - we are relying on your own hard work to read/understand the primary-source materials & form your own opinions w/o the influence of analysts/researchers/publishers (thats how you come up with a differentiated view in the first place).  Once you can differentiate between the different companies & understand why their performance is diverges from the peer set, then you have almost read enough.  If you cant differentiate, then repeat step1 and step2 again until you can.
3) Finally, after we have maxed-out on step1 & 2, above, we move on to expert networks (such as Third Bridge or GLG).  Here we get to talk one-on-one with ex-employees or ex-management to understand how the companies/industry operate from an the employees perspective.  We only talk to former execs, so they dont have/share any up-to-date insider info.  We are just trying to understand the operations from their perspective.


Thanks for sharing. 

I am looking for analysts' reports, not to trust their conclusions but try to collect data/facts(which maybe hard for me to get) and study their logics.

BTW, what are GLG?