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26 Value Investing Case Studies - Real World Examples of How Value Investing has Worked in Practice. Detailed Theses
5 Myths You are Told About Investing - To Value Invest Successfully, You need to Separate Truth from Fiction
Read on if you want to find
We have outperformed all benchmarks and Berkshire Hathaway stock since inception of the portfolio
An Enterprising Investor’s Guide to Value Investing with Value Stock Guide
Dear Investor
You are about to discover the secrets of wildly successful investors.
My name is Shailesh Kumar and I am the portfolio manager of Value Stock Guide.
Ever wondered why the most successful investors tend to be value investors?
Where are the traders and speculators? True, some of these become rich, but most lose their wealth as quickly.
Turns out, value investing has some secret advantages over all other styles of investing, that allows value investors to far outperform the rest of the market over the long term
You are an Investor, not a Gambler. There is a Better Way
Around the middle of the 20th century, there was a young investor named Benjamin Graham. He figured out a startling fact. Most investors do not make money in the stock market because they overpay for their investments.
Imagine that
It is not about buying a great stock, although that can be important. It is not about selling at the right price, although that is certainly important. And it is definitely not about company growth, which turns out to be not very important, as far as stock returns go
The fact is: If you buy a stock at a good enough discount, you may be wrong about everything else and you will likely still come out okay
Warren Buffett
From 1987 Letter to the Shareholders
" If you've been in the poker game 30 minutes and you don't know who the patsy is, you're the patsy."
"If you've been in the poker game 30 minutes and you don't know who the patsy is, you're the patsy." Warren Buffett
Refuse to be the patsy. Decide to buy a stock only when you can get it for less than its worth
How will your life change if you value invest?
Stock Returns between 1930 and 2009 Show the Superiority of Value Investing, Specifically with Small Cap Stocks
Asset Class | 1930 - 39 | 1940 - 49 | 1950 - 59 | 1960 - 69 | 1970 - 79 | 1980 - 89 | 1990 - 99 | 2000 - 09 | 1930 - 2013 |
|---|---|---|---|---|---|---|---|---|---|
S&P 500 Index | -0.1 | 9.2 | 19.4 | 7.8 | 5.9 | 17.5 | 18.2 | -0.9 | 9.7 |
Large-Cap Value | -5.7 | 12.7 | 18.4 | 9.4 | 12.9 | 20.6 | 16.8 | 4.1 | 11.2 |
Small-Cap | 2.3 | 14.9 | 19.2 | 13.0 | 9.2 | 16.8 | 15.5 | 9.0 | 12.7 |
Small-Cap Value | -2.6 | 19.8 | 19.6 | 14.4 | 14.4 | 20.1 | 16.2 | 12.8 | 14.4 |
Includes reinvestment of dividends. Source: Dimensional Fund Advisors.
Or to put it another way ...
Small Cap Value Performance
A $10,000 investment in 1930 made in S&P 500 Index would have seen your wealth grow to $22 Million by 2013. Not bad!
A similar $10,000 investment in 1930 made in small cap value stocks, on the other hand, would see your family enjoying a $707 Million portfolio in 2013
Very easy choice, right!
Any way you look at this, picking the right asset class WILL change your life
Value stocks consistently outperform the market. This is not in question. Study after study comes to the same conclusion. In fact there has never been a 20 year period where value stocks underperformed the market.
Do you plan to invest for 20 years or more?
How Do You Find the Best Stocks to Invest In?
To start, buy cheap stocks
Easy to say, right? But how do you find cheap stocks?
Turns out, it doesn’t matter. You pick a metric. Any metric. Be it Earnings, or Book Value or Sales or Cash Flow. Then you can blindly buy the stocks that are selling at lowest price relative to the metric.
Value Investing Performance Using Price/Earnings Ratio
​ | 1952 - 59 | 1960s | 1970s | 1980s | 1990s | 2000 - 2003 |
|---|---|---|---|---|---|---|
All Stocks | 19.22% | 11.09% | 8.53% | 15.85% | 14.75% | 5.91% |
50 High P/E Stocks | 19.27% | 10.96% | 2.26% | 7.99% | 16.99% | -14.73% |
50 Low P/E Stocks | 21.84% | 13.96% | 8.89% | 7.56% | 13.58% | 33.55% |
Difference | 2.57% | 3.00% | 6.63% | -0.43% | -2.85% | 48.28% |
Value Investing Performance Using Price/Cash Flow Ratio
​ | 1952 - 59 | 1960s | 1970s | 1980s | 1990s | 2000 - 2003 |
|---|---|---|---|---|---|---|
All Stocks | 19.22% | 11.09% | 8.53% | 15.85% | 14.75% | 5.91% |
50 High P/CF Stocks | 19.30% | 8.02% | -3.03% | 8.77% | 12.77% | -27.77% |
50 Low P/CF Stocks | 18.71% | 15.41% | 13.57% | 12.53% | 12.86% | 21.23% |
Difference | -0.59% | 7.39% | 16.60% | 3.76% | 0.09% | 49.00% |
Value Investing Performance Using Price/Book Ratio
​ | 1952 - 59 | 1960s | 1970s | 1980s | 1990s | 2000 - 2003 |
|---|---|---|---|---|---|---|
All Stocks | 19.22% | 11.09% | 8.53% | 15.85% | 14.75% | 5.91% |
50 High P/B Stocks | 22.32% | 13.13% | 0.82% | 1.97% | 18.03% | -31.17% |
50 Low P/B Stocks | 18.86% | 11.49% | 17.06% | 13.15% | 15.83% | 25.68% |
Difference | -3.46% | -1.64% | 16.24% | 11.18% | -2.20% | 56.85% |
Value Investing Performance Using Price/Sales Ratio
​ | 1952 - 59 | 1960s | 1970s | 1980s | 1990s | 2000 - 2003 |
|---|---|---|---|---|---|---|
All Stocks | 19.22% | 11.09% | 8.53% | 15.85% | 14.75% | 5.91% |
50 High P/S Stocks | 14.96% | 11.99% | 5.82% | -2.02% | -2.46% | -42.37% |
50 Low P/S Stocks | 20.85% | 11.15% | 14.80% | 20.43% | 13.80% | 19.94% |
Difference | 5.89% | -0.84% | 8.98% | 22.45% | 16.26% | 62.31% |
Source: What Works on the Wall Street. 3rd edition, James O'Shaughnessy
As you can see, value stocks do better than growth stocks, no matter how you pick them!
Profit Driver #1
Value Premium
Value stocks consistently outperform growth stocks due to the existence of Value Premium
The value premium exists because the market over reacts to any hint of trouble with a company. Investors (both individual and professional) are quick to reach when they realize they may end up being the "greater fool"
A value investor realizes that most companies survive. If he keeps buying stocks cheap, on average he will perform very well over time, even if a few of the investments do not work out
Profit Driver #2
Size Premium
Small company stocks outperform large stocks and market indexes due to the Size Premium
Small company stocks over a reasonably long time horizon, beat the large and mid company stocks and the overall stock market indices. This is because the Size Premium exists and favors small cap stocks
The reason this size premium exists is that the smaller company stocks are less followed by professional analysts. Therefore, enough information gaps exist in this sector to create opportunities that you and I can exploit for profit
You May be Asking: If Value Premium and Size Premium are each so good by themselves, what happens if you combine them?
Great question!
Short answer is that small cap value stocks are the undisputed leaders when it comes to the stock market returns. It has been this way ever since we have tracked the stock market returns based on asset classes.
In fact, the difference is so large and consistent, you would be right to wonder if investing in a large cap index fund such as S&P 500 makes you one of the biggest patsies in the stock market
Consider this:
Asset Type | Value | Growth |
|---|---|---|
Large Cap | 9.21% | 6.17% |
Small Cap | 12.13% | 5.77% |
Total Stock Market | 6.72% | |
Source: MoneyChimp.com, Inflation adjusted annualized returns 1927-2005
More recent Ibbotson study with 10 year rolling returns confirms these results, and shows the value of keeping a long term investment horizon
Always keep the larger perspective when choosing stocks to invest in. Value investing in small cap stocks pays off handsomely for the patient investor
The evidence is overwhelming. This data is out there. The trend is consistent. The conclusions are beyond dispute. Still, the financial media, the mutual fund industry, and the financial adviser community keep telling you to buy large cap index funds
Paraphrasing PT Barnum:
There are new patsies created in the stock market everyday
Here is the beautiful part: It is because these patsies exist, and in such large numbers, that value investors like Graham and Buffett and YOU can make tremendous profits in the stock market
Wouldn't you agree that it is far better to take advantage of the sheep in the market, then to be a part of the herd?
There is more ... Introducing the 3rd Profit Driver of Your Portfolio
In my expert opinion, this is huge!
Let me tell you this straight up. 99% of the investors have no idea how important this is, and the big difference it can make in your future wealth.
This is the secret why:
Profit Driver #3
Accurate Money Management
You need a solid risk management and position sizing process that you stick to with discipline
You can appreciate how different proportions of the same stocks can deliver different returns. In fact, it may be the difference between a profit and a loss.
It is no wonder Warren Buffett describes his job at Berkshire Hathaway as a "Capital Allocator"
Here is why this matters:
Let's say the market returns 10% per year for the next 40 years. At the end of 40 years, $100 invested will equal $4,526
Your friend has a great position sizing strategy, and he invests in small cap value stocks, and he achieves 11% per year for the next 30 years. At the end of 40 years, his $100 invested will equal $6,500
You on the other hand had no position sizing strategy and you invested your capital randomly in the same stocks your friend invested in. You achieve 9% per year for the next 40 years. Not too bad, just a little less than your friend you think. However, at the end of 40 years, your $100 invested is now just $3,141
​
You retire with less than half of what your friend has, and a third less than a simple index fund.
Keep in mind that a the errors in position sizing are normally not just a % here or there. They tend to be quite significant and compound rapidly. It is not uncommon to find investors who get wiped out after a few years and have no idea what they did wrong.
Learn More About Value Stock Guide Investment Strategy
Download our FREE whitepaper "Secrets of Profitable Investing". We talk about the 3 Profit drivers in more detail, with a greater explanation of the Position Sizing process than I can go into on this page. Use it to develop your own capital allocation strategy.
Value Stock Guide is the Only Service that Gives You All 3 Profit Drivers so You Can Maximize Your Profits and Minimize Your Risk
This is the holy grail of investing.
The recipe for success in investing can't be any simpler:
- Invest in the stocks that are more profitable
- Ensure you minimize your risk and allocate your capital to maximize profit
You know where the most profitable opportunities are. If you truly understand this, and decide to focus on small cap value stocks, you will likely come out better than most of the other investors.
If this takes too much of your time or you think you do not have enough financial expertise to do this on your own, there are many number of services online that can give you stock advice and recommendations. Value Stock Guide does this for you as well.
However, as far as I know, none of the other investment advice services or stock guide tell you how to optimally allocate capital in your portfolio.
Ever had the feeling that your investment service claims a certain return, but you never seem to get it in your own portfolio? Perhaps, they never told you how much to put in which stock!
Value Stock Guide tells you which stocks to buy and why, and I also tell you how much of your portfolio to allocate in each of the stocks. I have a strict risk management process that works to break out of value traps and protect against market crashes while capturing as much of the upside as we can. I follow the stock from purchase to sale, as if my own wealth depends on it.
It is because my own wealth DOES depend on it.
When You Invest with Me, I Invest With You
I do not give you a model portfolio. I give you my personal portfolio. I have only one portfolio and I invest my money in the stocks I ask you to invest in.
A lot of places will tell you that they avoid conflict of interest by not investing in their recommendations.
I think this is laughable.
I totally and absolutely invest with you. This makes sure that I only ask you to buy what I am willing to buy. My members trust me because they know I eat my own cooking.
This allows me to make decisions such as: buying more when a stock declines significantly.
Think about this - I do not have the need to make my portfolio look nice by chasing returns and cutting (temporary) losers.
I can make unpopular decisions to increase my position when the prices are cheaper. I can focus on the long term while others are forced to chase short term gains.
This is the essence of value investing. And you only get this at Value Stock Guide because my incentives are completely in line with your success.
If this is something that appeals to you, please explore the site, ask questions, and consider the Premium Membership. I am taking 2000 well chosen members globally in the VSG Premium program and will be delighted to have you grow your wealth with our exclusive community.
