As long as they are not given away. Buffett seems to like the newspapers, according to his take on the industry in the Berkshire Hathaway (BRKA) shareholder meeting today. His purchase of Omaha World-Herald last year has been working out well and he is thinking of buying more. The recent trend of newspapers erecting paywall… [Read More]
Best Value Investing Blogs, Tips and Articles
Value investing is an investment strategy popularized by Ben Graham and has proved to be a superior investment strategy over long investment horizons. We all like to buy products and services on sale - value investing just extends the concept to buying and selling stocks. It tends to simplify the investment process by eliminating confusing and generally useless concepts often part of the advanced financial and management academic programs. The success as a value investor arises from understanding the business and also by staying disciplined. Therefore, value investing is as much a financial concept as it is a change in investor behavior.
As many enterprising value investors realize after many years of "value investing" in practice, just learning the concepts and methods does not make you into a successful value investors. If this was enough, you would see a large number of very successful value investor mutual fund managers with enviable long term track record. Sadly, it is not so.
In addition to learning the methods and tools of value investing, you have to acquire a certain behavioral attributes that define a value investor. A sincere appreciation of value, a healthy rejection of whatever market sets as the price as a true reflection of value or a given asset, and the guts to stay with own analysis and research for a long period of time DESPITE an uncooperative market.
In fact, the markets are normally against you for most of the time you are invested in any undervalued asset. This created a great opportunity to acquire the asset for cheap, and you did. Wouldn't it be great if once you buy something, the market quickly moves to realized the value for you? Unfortunately, this is not how it works in reality, so you need to be able to call upon a set of behaviors and beliefs to be able to wait patiently for your profits.
At Value Stock Guide, I believe that there is enough material out there that teaches you how to calculate a certain ratio, or create a discounted cash flow model. This is not the secret to investing successfully for long periods of time. The secret to investing successfully for long periods of time is how you act and react at the edges. Do you display conviction in your ideas when the stock goes against you, or do you fold meekly? How do you build up this conviction? Isn't taking the easy way out like everyone else more comforting? Why do you invest - is it because you like the thrill of buying and selling, or is it because you patiently want to see your portfolio grow? Can you sit and watch the paint dry for days, if you know that at the end of the week there will be a substantial reward waiting for you?
I tackle many behavioral and soft side of value investing on these pages. Sometimes I also talk about the concepts. No one has ever become a good investor without building their core base of correct foundational investing attributes. You can do this here.
The articles below explain the concept of value investing, tips and tricks including articles aimed at beginner and advanced investors. Many of the concepts presented here are result of the evolution of value investing practice over time. Original value investing research and strategies are also posted here.
At some point you will wish to start using some of these ideas in your investing. We can help you find the best stocks to buy now and create a well optimized and high performance portfolio.
View articles in other categories: Dividend Stocks, Large Cap Stocks, Mid Cap Stocks, small cap stocks, Macro-economic, Investing Questions, Business, Personal Finance, Investment Guide, Investment Definitions
|How to get started in stocks|
I have been asked a few times why I do not invest in commodities. As a value investor, it is really hard to wrap my mind around the notion that commodities might be considered an investment. Here is why.
Commodities have no intrinsic value.
They have price. But the price is not the same as the intrinsic value.
Value investing is a process that aims to deliver outstanding long term returns. However, this should not be confused with the notion that value investors tend to buy and hold stocks for the long term. Long term investing indicates a consistent adherence to a strategy over a period of time – it does not mean you buy and continue to hold a stock regardless of its merit. Buy and hold strategy ignores valuations over the holding period.
Often you might come across stock warrants and you might have wondered what does it mean. Even if you are not interested in buying the warrants, it is important to know if the company that you are interested in buying the stock in also has outstanding warrants, as the warrants can have disproportionate effect on the returns you may be able to realize from the stock itself. To understand why this is the case, it is critical to understand what is a stock warrant and how it works. There are similarities between warrants and options but they also differ in some key respects.
For most investors who have grown up on the diet of high stock beta = high risk, this statement will come as a surprise. Beta means nothing for a stock. And beta explains nothing about the investment merits of a stock.
(BRKA) Berkshire Hathaway’s 2011 Shareholder Letter is out and was posted this past weekend. Like most value investors, I spent some time reading it. While I don’t feel it contains any nuggets of wisdom that Buffett has not already imparted over his long career, it is still important to learn to look at investments through… [Read More]
Investment risk rarely matches the risk perception in a security. Let’s see why.
Held long enough, the price of a security approximates its value.
Buying overvalued stocks in most cases deliver lackluster performance as the value struggles to catch up with the price. The price may decline, or if the business is growing value at a rapid pace, than perhaps there may be some price appreciation. Regardless, there is a better way to invest with less risk and more rewards
Buying undervalued stocks, in most cases deliver outstanding performance over time as the price rises to catch up with the value – as long as the business continues to create value over time
Investors are constantly reminded that the markets are efficient and there is no use trying to beat the market as it cannot be done on a consistent basis. In fact, we are told, that over 70% of the mutual funds fail to beat the market, presenting this as an evidence to somehow imply, in some convoluted logic, that we are better off handing over our money to the same mutual funds and invest passively, rather than take control of our own portfolio. I find this argument even more vacuous, considering that the best investors and stock pickers, who also happen to manage significant sums of money, do not usually run mutual funds.
Coming off a roller coaster year in the stock market, it is quite natural to be apprehensive about what lurks as 2012 rolls in. Should you buy stocks in 2012 or if you are out of the market now, than should you continue to wait and see? I will let the professional economists look in… [Read More]
There was a time when I used Edgar Online’s I-Metrix tool to do run basic stock screens and pull fundamental data in Excel that I can build my models on. The pro subscription, which you need for the Excel plugin, runs about $5K/year, and while the tool is powerful, I didn’t feel that the value it provides is worth the subscription. Ultimately, I figured, all I needed was the Excel plugin to pull financial data in Excel so I can run it through my models and do my own analysis.
We all look for the best bargains when we are in the market for an appliance or clothing or an automobile. After all, why should we not save money when we can? Ironically, when it comes to buying stocks, most investors are likely to go with the stock advice they get from friends or media, without paying too much attention to the value. Wouldn’t you want to know how to buy stocks at a discount? Afterall, buying low and selling high is where the profits are made.
Investment portfolio: Do s and Don’t s I have taken a position that excessive diversification creates a suboptimal portfolio. Beyond a certain level, further investment diversification does not lessen any more risk, but it does hurt performance of the portfolio. Some readers have questioned my stock investment advice on creating a focused investment portfolio. so… [Read More]
Classic value investing focuses on balance sheet with an understanding that in most industries, earnings power has no value as over time, competition and threats of substitution erodes any competitive advantage the company may possess. While this may be true, income statement should never be ignored. There are a few situations where they become critical to determine soundness of an investment.
As value investors, we look for investment moats. Wider the better. Wide moat stocks are rare as it indicates a competitive advantage and posits that the company is able to defend this competitive advantage, now and in the future.
But how do we see the future?
Asset diversification, as it is practiced today, is a crutch.
From financial advisors, mutual fund industry, media, personal finance bloggers, and every one in between, there is a consensus that diversification is essential for the best investment portfolio you can construct. Nothing can be further than the truth. The fact is, with the state of the investment industry today, your portfolio is very likely to be over diversified than under diversified. After a certain point, over diversification does not add any benefits to the portfolio, but it does take away from the potential rewards.
Speaking at the Value Investing Conference, Jim Chanos, President of the Kynikos Associate and a noted short in the market listed 5 different sectors and 5 representative stocks as value traps. He lists Chinese banks (or anything China really), Commodities companies dependent on single governments (such as Vale, 59% of revenues from the Chinese demand),… [Read More]
Every business valuation should start with a balance sheet analysis. It is easy to get lost in numbers and a range of what if scenarios when evaluating stocks for investment. While the financial statements may be standardized for GAAP, each line item in these statements have a history behind it that is unique to the company in question. Sometimes one needs to go beyond the numbers to understand the business to determine if the stock in the company under consideration is worthy of investment. Investors often get bogged down in projections and estimates. However a balance sheet is real and known and presents a better indicator of value with data that is more likely to give us a conservative estimate of the value.
Stock Market Today Stock market today is filled with fear and investor pessimism. The economic conditions in US, Europe and around the world are not making it easy for investors to continue to invest. And with the federal government running up excessive debt, and the inevitable credit rating downgrade by S&P, the future of the… [Read More]
The way to identify an undervalued stock is to empirically determine an intrinsic value of the stock that serves as a benchmark against which the stock price can be compared. If this intrinsic value is higher than the stock price in the market today, than the stock can be considered undervalued and vice versa. Over the years, many methods of establishing this valuation benchmarks have been devised and are in use today. Book Value of a stock is one such method.
To know if the price you are paying for a stock is fair, you need to have a good estimate of the value of the underlying business, or the intrinsic value that each share represents. While the stock price fluctuates based on the demand and supply of the shares in the secondary market, the business value only changes when the business conditions change. Over time, the intrinsic value and the stock price tend to correlate, in the short term there might be discrepancies large enough that an intrepid investor can exploit for profit. Learning about intrinsic value will help you value stocks to buy.