What is Value Investing?
I am not a stock market guy. Eldred apparently is to a large extent. He says value investing in the stock market is the approach advocated by Warren Buffet and Ben Graham. Graham wrote the books The Intelligent Investor and Security Analysis (1934 co-authored by David Dodd). Do these books have any value for real estate investors? Based on what Eldred says they say, I would say, “Yes. They offer some interesting insights into investing in general.” But Eldred’s book spends far too much time proving why stock market books that he does not like, e.g., Jeremy Siegel’s Stocks for the Long Run, are wrong and why income properties are better investments than stocks.
Greenwald: Value investing consists of three things — three things that you have to do to be a good value investor. To some extent, they are all rooted in the way Ben Graham approached things. The first thing is you have to understand the extent to which markets are efficient. It’s just inescapable that whenever you sell a stock, somebody else is buying it; and whenever you buy a stock, somebody else is selling it. And one of you is wrong. Only in Lake Wobegon can more than 50% of the investors outperform the market. So there’s an absolutely fundamental sense in which you’ve got to start off thinking that markets are efficient. You want to structure things so that you’re on the right side of the trade, that the people on the other side of the trade are, in some sense, doing irrational things. I think what Graham saw was that the best indicator of irrationality — sort of a systematic, statistical indicator of irrationality on the other side — is when things get oversold. And the way
Value investing is an investment style or strategy that involves the acquisition of stocks that are currently trading at less than the current perceived worth of the stock. The idea is to locate stable stock options that are undergoing a temporary fall in unit price, but are still considered to be good risks for future growth. From this perspective, value investing is all about doing research and projecting future performance. Investors who want to find some great deals by employing the value investing approach will look closely at stocks that are currently declining. Using this listing as a starting point, the investor will examine the history of the stock and the underlying issuer, including the historical price to book ratio. The investor will also evaluate the current status of the company against the current market conditions, and determine if there is a reasonable chance that the stock will begin to rise beyond the current purchase price when and if it does bounce back from the s
Value investing is something of a misnomer in many ways as no-one would knowingly buy shares in a company unless they offered good value. However, in investment circles it has come to mean the purchase of shares that look cheap according to particular criteria. Historically, this has meant the purchase of shares in companies which have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or indeed a mixture of all three. As such it is seen as the opposite of growth investing, where the investor focuses only on the potential for future earnings growth. So the heart of value investing lies in comparing two figures: • Current Market Value This is the easy bit. Just multiply the number of ordinary shares in issue by the current price of each share to produce the market capitalisation. You can look up the Market Capitalisation of a quoted company in the financial pages of most newspapers, in directories like REFS and the Hemscott Company Guide, and on ma
