The Values of Value Investing

3 blog articles from Institutional Investor



The Values of Value Investing


Ben Graham’s value investing

scrape off the bottom of the stock market abyss — what Warren Buffett calls the cigar-butt approach

statistical cheapness: single-digit PE, a discount to book value, or below their cash value

not scalable, and have not been available


Buffett and Munger’s value investing

Adding quality and growth to cheapness

“It was better to buy good businesses even if the price wasn’t dirt cheap”

The quality and growth dimensions may lack tangibility and are often difficult to quantify

e.g. A high-quality, mature company that already has a large market share in an industry with GDP-like growth, and its existing business generates a high return on capital, (but it cannot put this capital to work at high rates)


A review

It’s more like an inflation-protected bond:

investor will collect dividends that will grow with inflation

make or lose money on the stock price depending on the pendulum swing of PE multiplies around the fair value

par value will also appreciate in line with inflation

Today’s world:

investors are starved for yield, mature high-quality businesses trade like very, very expensive bond substitutes

low inflation, abundant money supply

focus on the ability to reinvest at a high rate in the future

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