I'm just interested who on silverstackers would consider themselves to be a 'Value Investor'. For those that are unfamiliar with the terminology, a value investor (its a redundant term really, if you not buying based on value then you are speculating) is someone who attempts to buy businesses (either listed or unlisted) for less than their intrinsic value (i.e. for less than its worth). Value investing is generally a 'bottom up' (i.e. company specific focus) fundamental business based approach. Basically if you act the way a prudent and savvy businessman would when acquiring a whole business (i.e. proper due diligence, patience, a basic understanding of business valuation combined with a level head) then you are value investor. Value investors aren't particularly concerned with movements in the price of the shares they own or movements in the stock market as a whole. They are concerned with the performance and intrinsic value of the businesses they own. Generally they will only be concerned about price in the rare and unfortunate situation in which they have to sell. I will stick my hand up and say I consider myself to be a value investor despite the occasional speculation that I make (i.e. silver purchases) as it is primarily the approach I follow. I would like to hear from other 'Value Investors' on the forum. 'Investment is most intelligent when it is most businesslike' sums up the value investing philosophy quite nicely.
I tried to read Benjamin Graham's 'Security Analysis' but have to admit couldn't last even the first 200 pages. I take a medium term (at least 12 months) view of any prospect with an high emphasis on fundamentals and competitive advantages. I am one of those people who actually pour over every footnote in the financial positions in the annual report. If I follow my selection criteria strictly I could easily limit myself to less than 10 positions per financial year.
I've read the 1951 edition of security analysis by Benjamin Graham and David Dodd, its quite a thick tome. I would say perhaps your a value investor in training. The fact that you couldn't get through security analysis perhaps suggests you need to work on your patience a little more. Twelve months is a short term horizon. You really should be looking at a company's prospects over at least the next 3-5 years and preferably over the next 10 - 20 years, or even better over the business remaining life span. Mathematically speaking intrinsic value is the net present value of the cash to be extracted from an asset over its remaining useful life i.e. for as long as the company produces cash flow. Also mathematically speaking a company that can generate sustained long-term double digit compound earnings/maintainable cash flow per share growth will (assuming a discount rate that is not outrageously high) usually have the majority of its intrinsic value coming from cash flows more than 10 years into the future i.e. the first 10 years of cash flow after your purchase comprise less than half the intrinsic value of the business. Yes poring over annual reports including the footnotes is an integral part of value investing. Qualitative analysis including the analysis of a company's competitive position and whether it has any sustainable competitive advantage (very few companies do) is crucial for those value investors with a concentrated portfolio. It is okay to invest in companies without a sustainable competitive advantage but they are riskier and need to be watched more closely. The fact is that very very few companies have one and most investors including most value investors delude themselves into thinking something is a sustainable competitive advantage. The key word being sustainable as opposed to transient. Also a concentrated portfolio is generally regarded to lead to superior returns for value investors (although here are some value investors who practice a more diversified quantitatively focused approach). A portfolio with too many positions in the absence of some sort of strict diversification mandate is usually a sign of either insecurity (i.e. I don't feel confident enough about the prospects for the business or in my knowledge about them), inexperience or overconfidence (I know a great detail about many business). If you are always struggling to find suitable investments and have a concentrated portfolio it is generally sign that you a using a disciplined approach and are doing something right. Lack of patience is what stops most people from successfully adopting a value investing approach. Extreme patience is needed to be successful.
