1. Value Investing overview
Deepak Shingadia

2. ‘You are buying a piece of a business’
Who is a value investor?
Widely used definition of value investors suggests that they are investors interested in buying stocks for less that what they are worth.
‘You are buying a piece of a business’
Not a piece of paper
Not trading on price movements
Focused on fundamental analysis of the company

3. How well does Value investing perform?
Graham’s best claim to fame comes from the success of the students who took his classes at Columbia University. Among them was Warren Buffett. However, none of them adhered to his screens strictly.
Must read:
The Superinvestors of Graham & Doddsville – by Warren Buffet
Fund
Manager
Investment approach and constraints
Fund Period
Fund Return
Market return
WJS Limited Partners
Walter J. Schloss
Diversified small portfolio (over 100 stocks, US$ 45M), second-tier stock
1956–1984
21.3%
8.4% (S&P)
TBK Limited Partners
Tom Knapp
Mix of passive investments and strategic control in small public companies
1968–1983
20.0%
7.0% (DJIA)
Buffett Partnership, Ltd.
Warren Buffett
1957–1969
29.5%
7.4% (DJIA)
Sequoia Fund, Inc.
William J. Ruane
Preference for blue chips stock
1970–1984
18.2%
10.0%
Charles Munger, Ltd.
Charles Munger
Concentration on a small number of undervalued stock
1962–1975
19.8%
5.0% (DJIA)

4. The Buffett Mystique

5. The Different Faces of Value Investing
Passive Screeners: Following in the Ben Graham tradition, you screen for stocks that have characteristics that you believe identify under valued stocks. You are hoping to find market mistakes through the screens.
Contrarian Investors: These are investors who invest in companies that others have given up on, either because they have done badly in the past or because their future prospects look bleak. You are implicitly assuming that markets over react.
Activist Value Investors: These are investors who invest in poorly managed and poorly run firms but then try to change the way the companies are run.
Growth at a reasonable price Investors: These are investors who invest in ‘high quality’ companies at a reasonable price.

6. I. The Passive Screener
This approach to value investing can be traced back to Ben Graham and his screens to find undervalued stocks.
With screening, you are looking for mispriced companies i.e. no real reason for them to be cheap
e.g. Buying a property based purely on its rental income.
No real consideration given to its location, size,
layout, quality of tenant etc.

7. Example of Value investing Screens suggested by gurus
PEG – Jim Slater
Price/earnings – Peter Lynch
EV/EBIT- Joel Greenblatt
Price/book value – Benjamin Graham
Forward rate of return – Yackman
Shiller PE – Robert Shiller
Price/owner earnings – Buffet
Margin of safety% - Buffet/Graham/Klarman
Important to not use these metrics in isolation but use these to start your journey into researching the company..
‘One size does not fit all’

8. II. Contrarian Value Investing: Buying the Losers
You believe the market has over reacted to good and bad news. Consequently, stocks that have had bad news come out about them (earnings declines, deals that have gone bad) are likely to be under valued.
Property crash 1980’s/ 2007

9. Determinants of Success at “Contrarian Investing”
Self Confidence: Investing in companies that everybody else views as losers requires a self confidence that comes either from past success, a huge ego or both.
Patience: These strategies require time to work out. For every three steps forward, you will often take two steps back.
4. Stomach for Short-term Volatility: The nature of your investment implies that there will be high short term volatility and high profile failures.

10. III. Activist Value Investing
Passive investors buy companies with a pricing gap and hope (and pray) that the pricing gap closes.
Activist investors buy companies with a value and/or pricing gap and provide the catalysts for closing the gaps.
- Ability to follow some big activist investors/hedge funds into stocks - Carl Icahn
‘Previous landlord has not maintained the property. You see the real potential’

11. IV. Quality at a reasonable price ‘Moving away from cigar butts’
Moat
Consistent operating history
Favorable long term prospects
Good management
Mgt know how to reinvest
High and stable profit margins
Buying with a ‘margin of safety’
Ideally buy and hold forever
‘Buying a property in Mayfair where there will always be demand from people with money’

12. Become a learning machine
One up on wall street – Peter Lynch
The Dhandho Investor – Mohinish Pabrai
The little book that beats the market – Joel Greenblatt
The big secret for the small investor - Joel Greenblatt
Future reading
Intelligent investor – Benjamin Graham
Berkshire Hathaway letter to shareholders – Warren Buffet

13. Value Investing
Deepak Shingadia