Value Investing: Where is the beef?

In my first post in this series on value investing, I noted that value investing is a broad brush that covers a range of different approaches, ranging from screening for cheap stocks to looking for bargains in the "loser" bin to being catalysts for change in poorly managed, mispriced companies. There is one characteristic that some value investors seem to share, which is that they are the grown-ups in the investing world, and that investors with different views of the world (a belief in momentum, hope for growth or that markets are efficient) are deluded. Implicit in this view is also the belief...

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Activist Value Investing: Be your own "change" agent

My last two posts looked at two strains of value investing. In the first, passive screening, you look for mismatched companies that trade at low prices, while not being burdened with high risk, low growth or low quality growth. In the second, contrarian investing, you focus on companies whose stock prices have gone down the most, on the assumption that markets overreact to news and consequently have to adjust. While both approaches are backed up by empirical evidence, you still face a problem as. Without a catalyst in the market, causing the stock price to move to what you think is a "fair value",...

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Contrarian Value Investing - Going against the flow....

Nokia came out with an awful earnings report yesterday, with warnings of more bad news to come, and its stock price, not surprisingly, plummeted.While investors are fleeing the stock and a ratings downgrade looms, is it a contrarian play? What about JP Morgan Chase? Or Research in Motion? Netflix or Green Mountain Coffee, anyone? By focusing on stocks that other investors are abandoning, contrarian value investing is the "anti-lemming" strategy, but it takes a unique personality and a strong stomach to pull off successfully.The basis for “contrarian” investingThe core belief that underlies contrarian...

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Passive Value investing: Screening for bargains

As long as there have been markets, I am sure that investors have used screens to find good investments. It was Ben Graham, however, who systematized the process in his books on investing, by laying out the ten criteria (screens) that could be used to find cheap stocks. An earnings to price yield > Twice the AAA bond rate (At the AAA bond rate of about 3.6% today, that would work out to an earnings to price ratio > 7.2% or a PE< 14)PE ratio today < 40% of the highest PE ratio for the stock over the previous 5 yearsDividend yield > 2/3 or the AAA bond yield (At today's AAA rate,...

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Value Investing: An Identity Crisis?

Any post about value investing always evokes strong responses, but I thought I would start this one by turning the focus inwards. So, here are a few questions for you :1. Would you classify yourself as a "value investor"?a. Yesb. No2. If yes, what makes you a value investor?a. I try to estimate the value of a stock before I invest in itb. I only buy stocks that trade at attractive multiples (low PE, low PBV etc.)c. I do my homework, looking at the fundamentals, before I investd. I don't know. I just am.3. Finally, do you think that value investors collectively do better than other investors in...

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