Time to revisit Graham?

I am nowhere near being an adherent of Benjamin Graham's investing techniques, but I am influenced by his insightful thoughts. The Globe & Mail's Globe Investor magazine has a nice article questioning the performance of Graham followers and value investing in general.

Graham is widely acknowledged as the father of value investing—the school of thought that’s sober, numbers-based, and which aims to buy companies at hefty discounts to their intrinsic value, rather than according to the minute-by-minute mood swings of the investing public. So-called Mr. Market isn’t at all rational, showing up at your door every day and offering you a different price for your shares. Just take a look at the bipolar Dow this fall: down 777 points one day, up almost 1,000 a few days later.

“Graham used to talk about Mr. Market being a manic, paranoid, schizophrenic individual who goes up and down for any reason at all, unrelated to the fundamentals,” says George Athanassakos, director of the Ben Graham Centre for Value Investing at the University of Western Ontario. Our purpose as value investors is to find out what those fundamentals are, determine intrinsic value, and not be swayed by human emotions.”

In theory and results, a solid philosophy. In practice, very hard to pull off, because when everyone in a crowded movie theatre is shouting fire and fleeing for the exits, it takes nerves of steel to do the exact opposite.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>