Any Value Investors here?

[RT Wolf]

Ahoy all,

I'm a value investor, and that's pretty rare (as rare as finding someone totally committed to personal development, or trials biking). Anyone else here?

Basically, value investors look for dollars on the stock markets for fifty cents (or less). I look for dollars for at most, 70 cents.

Wikipedia, for the financially inclined:

Value investing - Wikipedia, the free encyclopedia

Even if you're not a value investor, I highly recommend:

The Little Book That Beats the Market by Joel Greenblatt. Site: Magic Formula Investing

Kinda Airy title, but Greenblatt's like that. Quick read, and awesome.

[dmauder]

Hi RT:

I've been wanting to be a value investor for some time now, but haven't really made the move.

Basically, I've studied various investing and trading methodologies/strategies, and came to the conclusion that value investing makes the most sense (for me). I've read several Warren Buffet books and the Intelligent Investor.

I also recently found The Everyday Investor and subscribed to his newsletter for 1 year. Very good stuff there!

So, all that remains is for me to re-work my current portfolio to dump the garbage and start investing in value. The sad part is that I still hold CSCO and MSFT which I bought back in March of 2000. As you can well imagine, I have a pretty significant loss there. Not too bad with MSFT because of a couple splits, but CSCO is killing me.

So, what made you decide to go with value investing?

Gemini4X

[RT Wolf]

Hey,

I kinda fell into it when my brother got into it. Since then, I've explored the other kinds of investing and none of htem made as much sense to me. There's also the impressive track record of huge value investors. Treat the stock price as the price of a piece of a real business just makes sense. That and it's been working fairly well for me, so I'm happy.

MSFT is interesting, after its massive drop a few months ago, some value investors felt it was a bargain. However, you may have bought it long ago, when it was overvalued (march 2000 sounds like it was in the bubble?). Recently it's done nicely. It's all about how much you buy it for in relation to some intrinsic value.

My millionaire dream includes a strong element of investing.

Good luck with your investing!

[b__p]

I read The Little Book That Beats the Market but found that way 'too airy' as you say. I've found Phil Town's Rule #1 Investing strategy to be something easy to follow for even the most new of investors.

The Rule #1 book provides an easy to follow methodology based on Warren Buffet's method of valuing companies and determining whether they are currently trading below 'sticker price' with a built in margin of safety. My first efforts of paper-trading using this methodology have produced a 17% return. You can find more Rule #1 investing information at Rule 1 Numbers.

[dmauder]

Originally Posted by b__p

I read The Little Book That Beats the Market but found that way 'too airy' as you say. I've found Phil Town's Rule #1 Investing strategy to be something easy to follow for even the most new of investors.

The Rule #1 book provides an easy to follow methodology based on Warren Buffet's method of valuing companies and determining whether they are currently trading below 'sticker price' with a built in margin of safety. My first efforts of paper-trading using this methodology have produced a 17% return. You can find more Rule #1 investing information at Rule 1 Numbers.

I haven't read the Rule #1 book yet, but I have it on order since I read your post. How long have you been working with the strategies, and how much time do you honestly have to spend each day and/or week looking for companies that meet the criteria?

Gemini4X

[b__p]

The "15 minutes a week" is definitely marketing speak because it takes a while to find companies that you want to invest in and make sure they meet the criteria. Once you've done the research, then yes, your investments can be monitored in just a few minutes every day.

Because of my background as a programmer, I wrote a program to find the companies that meet the numeric criteria, but that is only half of the research that must be done using the method outlined in the book.

I've been paper-trading this system for 6 months and I'm up 17%.

[jkmuller]

What a great idea for a thread! I have a copy of "Security Analysis" sitting in front of me just waiting to be read. Its a pretty dense book however and I hope I can extract something from it. I've known that this is the kind of investing for me ever since I heard about it, I really love the fact that it is based on simple tenants that actually make sense and work. Reading a biography on Warren Buffett really brought this into perspective. There must have been four or five separate times that people thought he had lost his touch only to see the markets decline, Warren investing in undervalued stock all the way down.

[RT Wolf]

^ You might consider reading The Intelligent Investor, also by Ben Graham. He really espouses the value investing approach/philosophy in that one, while Security Analysis is THE textbook on fundamental analysis.

I haven't read the Rule#1 book either, but I think I have an idea of what it'll be going for. I'll add it to my list of books to read. Thanks for the recommendation!

[Fusebox]

Value investing is something I want to start in the next few months with a small $ amount (Eg: $2000). Im currently reading The Intelligent Investor and its fascinating reading.

[thadroe]

Statistically, you are probably better off keeping a balance between growth and value. If you look at the long term returns of both a growth and value style, they are pretty much the same. By always having some exposure to both, you end up smoothing out your volatility because both styles can go through long periods of being in favor.

Thad

[pedrotn]

I mentioned in another thread that I was an RIA (register investment advisor) and gave some advise over there. But I thought I would throw my opinion in here as well.

When investing with small amounts of money you really are much better off using a no load mutual fund that is highly rated, with a proven track record, and low expense ratio. Remember on a 2k investment a 20% (an extremely good return in these times) return over the course of a year leaves you with $2,400.00.

So before you put all that work and effort into researching stocks and trading them, realize what you are getting into. With a good mutual fund you can buy it and track it with much less worry and hastle. Also it gives you the diversification that you can't achieve by investing in individual companies when you have limited funds.

Now on the topic of value investing in general. It is a good strategy when done at the right time. It is important for an investor to be flexible. If you were a value investor during the beginnings of the internet bubble you were getting creamed by growth investors. If you are going to actively invest in individual stocks it is important to watch the market religiously. There are times to be a growth investor and times to be a value investor. What makes a true investor is knowing when each of those times are.

Peter

[RT Wolf]

I'll step forward and say I don't agree with you there. I believe you're talking about market timing and I can't think of anyone who can do that well and/or for long. A mix of investment styled funds could work and, in fact, that's what Peter Lynch recommends in his book, Beating The Street. He emphasizes that you should put more money into the fund that's been underperforming rather than putting it into the best performing fund.

That, and oftentimes it's easier to find bargains when you're a smaller investor in every kind of market. Most of my current investments are either in small cap stocks or small cap funds.

Just to be clear, we're referring to growth investing as outlined in Common Stocks and Uncommon Profits?

Philip Arthur Fisher - Wikipedia, the free encyclopedia for those who aren't familiar.

Fool.com: Investing, Stock Research, and Personal Finance practices that sorta approach. good site with easily readable information.

[dmauder]

Originally Posted by RT Wolf

I'll step forward and say I don't agree with you there. I believe you're talking about market timing and I can't think of anyone who can do that well and/or for long.

I also agree... After many years of investing (not very well, I admit) and tons of reading, I think it's important to pick one style of investing and become the very best at it.

I may be wrong, but I don't think Warren Buffet flip flops around between different styles based on what the market is doing. He has certain rules and he sticks to them, no matter what. That seems to have worked pretty well for him!

I'm getting the Rule #1 book and plan to paper trade the strategy for a short time. Then, I'll jump in with $3-5K from my SIMPLE IRA account that I feel comfortable playing with. Don't worry, I have plenty in my 401K and ROTH IRA, so I won't be risking my retirement funds.

I've read the Intelligent Investor, but it didn't seem to lay things out in a step-by-step approach. It is a very good book, but I need a structured system with solid rules to get me off my bum to do something. I know, it's an excuse, but that's me...and I've learned to live with me.

Gemini4X

[dmauder]

I know what I forgot to add...

Does anyone have any advice as to what I should do now that I'm still holding CSCO and MSFT in my portfolio? I purchased them back in March 2000 (yes, that was the bubble), and they crashed hard.

MSFT is about at break even because of 2 or 3 splits, but CSCO is down about 47% or more. I haven't looked in a while because it hurts.

I also bought GEOI a few months ago based on a mention by Jim Cramer. Of course, I bought around $15 and now it's at $6.55. DUMB, DUMB, DUMB!!!!

Other than those stocks, I also hold several different mutual funds and the bulk of my money is in an S&P 500 index fund, with the remainder in either SWEGX or TWCIX. Actually the TWCIX was part of a college fund we started for each of our kids many years ago. It did really well for a long time, then started to tank in May of this year. I wasn't watching it close enough or I would have moved everything to cash and possibly invested in something else.

Maybe I could just evaluate everything I have now against the rules I'll learn in Rule #1 and then get rid of the stuff that doesn't measure up. Hmm...

I guess my biggest issue is keeping up on my current investments and moving things around when appropriate.

How do others deal with this challenge? Is there a particular software program or online service you use to keep track of your investments?

Gemini4X

[pedrotn]

Market timing doesn't always work and alot of academics are against it. However, lets say you were a growth investor and only a growth investor in 1999 and you stayed in growth until today. You would be very deep in the hole. There are times when it is clear and its time to reduce risk. We pulled almost 80% of the funds we manage out to cash and extreme value during the 2000 2001 period and stayed breakeven through the recession.

My firm generally is a conservative manager. However when the market begins to strengthen and the economy is there to support it then adding risk by adding growth stocks and or funds makes sense. When the market weakens we try to move more conservative. If you don't try to hit the absolute peaks and valleys market timing in a conservative sense works very well.

Peter

[Abhey]

Some of the companies that might be good value investments have questionable ethical principles (e.g. tobacco companies).
Secondly you have to be careful, sometimes a seemingly undervalued company is going to keep on going down.
With these two caveats, value investing is probably one of the best ways to go. Like all investment strategies it carries a risk.
And GeminiX: if your research tells you that the investment you have in CSCO could make a better return somewhere else then sell, take the loss and move on. It's a pretty common pyschological flaw that we don't like making our losses concrete and thereby end up losing more in the long run. It may be uncomfortable but it's often the right thing.

[G. Gekko]

Originally Posted by RT Wolf

Ahoy all,

I'm a value investor, and that's pretty rare (as rare as finding someone totally committed to personal development, or trials biking). Anyone else here?

Basically, value investors look for dollars on the stock markets for fifty cents (or less). I look for dollars for at most, 70 cents.

Wikipedia, for the financially inclined:

Value investing - Wikipedia, the free encyclopedia

Even if you're not a value investor, I highly recommend:

The Little Book That Beats the Market by Joel Greenblatt. Site: Magic Formula Investing

Kinda Airy title, but Greenblatt's like that. Quick read, and awesome.

I agree that value investing is the way to go. But I must confess that I do like the excitement that comes along with gambling. The majority of my portfolio have been bought using Graham's/Buffett's principles. They are all solid companies that usually have high profit margin or high product turnover, great historical prices, and have been bought at a time when their prices dipped without any good reason (ie. market fluctuation).

But roughly 20% of my portfolio is dedicated to speculation. I guess I'm just an adrenaline junkie (I also do amateur mma cage fighting every once in a while.), but I'm smarter than most other bozos (day traders) when I choose roll the dice. For example, it's surpising that not much people even bother to use "stop loss" on stock purchases. That and "limit orders" generally take all the emotion out of buying and selling. So far the bigest loss I have to date is only about 5%. But in general my portfolio has left the S&P 500 in the dust. And I've been investing since my dad opened my first trading account for me 1994, when I was only 15.

[kmr321]

So what are the essentials needed if your looking to get into stocks

apart from money...
eg. books?, ratios?, software?, investment forms? magazines?

[RT Wolf]

You need to read this:

Wall Street Crash of 1929 - Uncyclopedia

While amusing, it makes a good point, too. The essentials of getting into stock investing (and especially value investing) include patience, the willingness to learn, humility, courage to take the right risks, and control over your actions enough to not let your emotions make your decisions and actions for you.

The bible of value investing is a book by Benjamin Graham (founder of value investing) called The Intelligent Investor. His kinds of bargains are rare these days, so you have to take the essence of his philosophy form this book. It's not an easy read.

An easier read is One Up On Wall Street by Peter Lynch.

Another good one is You can be a stock market genius by Joel Greenblatt, and the other book I mentioned in hte first post.

You need to have a working knowledge of accounting and need to be able to read annual reports and so forth. I'll add other stuff as I think of it. Perhaps others can, too.

[dmauder]

Originally Posted by b__p

The "15 minutes a week" is definitely marketing speak because it takes a while to find companies that you want to invest in and make sure they meet the criteria. Once you've done the research, then yes, your investments can be monitored in just a few minutes every day.

Because of my background as a programmer, I wrote a program to find the companies that meet the numeric criteria, but that is only half of the research that must be done using the method outlined in the book.

I've been paper-trading this system for 6 months and I'm up 17%.

Hi All!

I'm now several chapters into the Rule #1 book, and I have to say, it really is a good book. Now that I'm getting into the meat of how to do the analysis on the numbers, you are exactly right that the "15 minutes a week" stuff is totally marketing fluff.

I guess that after you do your initial sorting, screening and buying, you could potentially spend only 15 minutes per week maintaining your current investments.

I'll keep you all posted as I get further along and actually start paper trading the strategy.

So, B_P, were you unable to find any online screeners that would give the necessary numbers, or did you just write your own program because you can??

Max

[b__p]

Max,
At the time I wrote my program, there were no other options. Investools has a Rule #1 search that came out after I wrote my program but I'm not paying $2000+ for Investools. Plus, now I know what companies meet the criteria and I can run the numbers at any time for all the companies to get updates.

[hkalchemy]

I am convinced that value investing is the only way to make money sustainably in the market. The basic idea of buying good quality stock on the cheap seems blindingly obvious. As far as I'm concerned, value investing is the only type of investing. Anything else is gambling.

[borntosucceed]

I started investing a couple of years ago after I did a course teaching you some basic charting techniques, which is basically analysing uptrends and downtrends.
When sticking to the rules from the course I was averaging a return of more than 30% (not including any leveraging) over a year. It takes me now roughly 1 hour per week to go through a list of stocks and make buy or sell decisions. Pretty good return for the time investment.

My next step is spending more time on cycle analysis to up the return.

I guess there are many trading techniques out there and I believe it is important learning one and sticking to it. Most of my losses came when I deviated from the rules.

[Sam988]

I have already read the "The Little Book That Beats The Market". It is a good book but we should see if it's still effective now since the trend is that afte a technique gets known widespread and as more people use it the less effective it becomes. I assume that consequently it will get harder and harder to find stocks that fit the criteria.


But value investing is indeed the (only?) way to go, and although many people use it, opportunities will always exist. It's the approach that makes the most sense to me, and the approach where there's the less risk of we suddenly losing it all, like with the risk when we're buying stocks like traders.

[sv800]

Originally Posted by dmauder

I know what I forgot to add...

I also bought GEOI a few months ago based on a mention by Jim Cramer. Of course, I bought around $15 and now it's at $6.55. DUMB, DUMB, DUMB!!!!

Gemini4X

Listen to Crammer's jokes, cool guy but do not buy what he recommends, even more, do not listen to analysts picks, usually they are quite wrong...

Here is the probe. CRAMMER 3/11 BEARN STEARN IS FINE, DO NOT BE SILLY DO NOT SELL BEAR STEAR...

YouTube - Jim Cramer: "Bear Stearns is Fine!" Tues, 3/11/08

educate yourself...