Book Review: The Little Book Of Value Investing
This is a very interesting book for all those hooked to Value Investing. I was naturally attracted and I possess the book in both formats (Audio CDs and hard bound book).
The book is divided into twenty one chapters, each very small (after all, it is a "little book" ) but enough to drive across the point!
On the long history of Value Investing, Christopher Browne explains, Value investing has been around as an investment philosophy since the early 1930s. The principles of value investing were first articulated in 1934 when Benjamin Graham, wrote Security Analysis, the first, and still the best, book on investing.
Value investing is explained in two plain sentences - The beauty of value investing is its logical simplicity. It is based on two principles: What's it worth (intrinsic value) and don't lose money (margin of safety). These concepts were introduced by Benjamin Graham in 1934, and they are as relevant today as they were then (emphasis mine).
The titles of chapters one, three and five sum up the above definition of value investing:
On the power of compounding - A few percentage points of better performance can have a huge impact on your net worth.
On the importance of intrinsic value - it lets the investor take advantage of temporary mispricing of stocks...... In a perfect world, all stocks would sell for their intrinsic value. But it is not a perfect world. That is good. It creates investment opportunities.
Yet another term "Permanent Capital Loss" is explained - If a stock is grossly overvalued and its stock price crashes, history shows that it is unlikely it will regain its former inflated value.
No book on Value Investing can complete without an explanation of the methods of the Father of Value Investing - Benjamin Graham. His method is explained in a simple yet lucid manner - Basically, Graham wanted to buy stocks selling at two-thirds or less of their intrinsic value. That was his margin of safety, the belt for his stocks. It is a margin of safety for a couple of reasons. First, if he was correct in his estimate of intrinsic value, the stock could rise 50 percent and still not be overvalued. Second, if the stock market hit a rough patch, he had the comfort of knowing that what he owned was ultimately worth more than what he paid for it.
On the falliability of earnings prediction, When it comes to projecting earnings, however, the track record of Wall Street analysts is spotty at best and highly inaccurate at worst.
Mr.Browne also talks about the benefits of opening up to international investing which has created more opportunities to buy stock below book value than ever before. He, however mentions that he prefers developed countries/stable economies - including Western Europe, Japan, Canada, New Zealand, Australia, Singapore and Hong Kong. The real reason to invest with a global focus is to double the number of potential value opportunities, he reasons.
As with all value investors, he proffers his definition of risk - Risk is more often in the price you pay than the stock itself.
One of the best sentences that I liked in the book - A collection of businesses bought at excellent prices is no less a long-term asset than a piece of real estate and should be treated the same way.
On the challenges faced with conventional investment managers, he mentions that the investment world equates activity with intelligence. So, there is almost constant pressure on them to act.
On emotions and investing, he explains that being a contrarian is not easy. There are a lot of pressures acting on contrarian investors - missing the thrills of growth & momentum investing. Value investing is more like a long trip to a pleasant destination than ride on a roller coaster.
Finally, to top it all, the last sentences are arguably the best sentences in the book -> What I do know is that owning a diversified portfolio of stocks that meets the standards of margin of safety and are cheap, based on one or more valuation methods, has proven to be a sound way to invest my money.
My take on this book -> Compared to the bible of Value Investing (The Intelligent Investor by Benjamin Graham), this is a simple book. Easy to understand, with a common sensical approach. I would strongly recommend to all investors. It deserves a place on your bookshelf.
Invictus.
The book is divided into twenty one chapters, each very small (after all, it is a "little book" ) but enough to drive across the point!
On the long history of Value Investing, Christopher Browne explains, Value investing has been around as an investment philosophy since the early 1930s. The principles of value investing were first articulated in 1934 when Benjamin Graham, wrote Security Analysis, the first, and still the best, book on investing.
Value investing is explained in two plain sentences - The beauty of value investing is its logical simplicity. It is based on two principles: What's it worth (intrinsic value) and don't lose money (margin of safety). These concepts were introduced by Benjamin Graham in 1934, and they are as relevant today as they were then (emphasis mine).
The titles of chapters one, three and five sum up the above definition of value investing:
- Buy stocks like Steaks ..... On Sale
- Belts and Suspenders for Stocks
- Buy a Buck for 66 Cents
On the power of compounding - A few percentage points of better performance can have a huge impact on your net worth.
On the importance of intrinsic value - it lets the investor take advantage of temporary mispricing of stocks...... In a perfect world, all stocks would sell for their intrinsic value. But it is not a perfect world. That is good. It creates investment opportunities.
Yet another term "Permanent Capital Loss" is explained - If a stock is grossly overvalued and its stock price crashes, history shows that it is unlikely it will regain its former inflated value.
No book on Value Investing can complete without an explanation of the methods of the Father of Value Investing - Benjamin Graham. His method is explained in a simple yet lucid manner - Basically, Graham wanted to buy stocks selling at two-thirds or less of their intrinsic value. That was his margin of safety, the belt for his stocks. It is a margin of safety for a couple of reasons. First, if he was correct in his estimate of intrinsic value, the stock could rise 50 percent and still not be overvalued. Second, if the stock market hit a rough patch, he had the comfort of knowing that what he owned was ultimately worth more than what he paid for it.
On the falliability of earnings prediction, When it comes to projecting earnings, however, the track record of Wall Street analysts is spotty at best and highly inaccurate at worst.
Mr.Browne also talks about the benefits of opening up to international investing which has created more opportunities to buy stock below book value than ever before. He, however mentions that he prefers developed countries/stable economies - including Western Europe, Japan, Canada, New Zealand, Australia, Singapore and Hong Kong. The real reason to invest with a global focus is to double the number of potential value opportunities, he reasons.
As with all value investors, he proffers his definition of risk - Risk is more often in the price you pay than the stock itself.
One of the best sentences that I liked in the book - A collection of businesses bought at excellent prices is no less a long-term asset than a piece of real estate and should be treated the same way.
On the challenges faced with conventional investment managers, he mentions that the investment world equates activity with intelligence. So, there is almost constant pressure on them to act.
On emotions and investing, he explains that being a contrarian is not easy. There are a lot of pressures acting on contrarian investors - missing the thrills of growth & momentum investing. Value investing is more like a long trip to a pleasant destination than ride on a roller coaster.
Finally, to top it all, the last sentences are arguably the best sentences in the book -> What I do know is that owning a diversified portfolio of stocks that meets the standards of margin of safety and are cheap, based on one or more valuation methods, has proven to be a sound way to invest my money.
My take on this book -> Compared to the bible of Value Investing (The Intelligent Investor by Benjamin Graham), this is a simple book. Easy to understand, with a common sensical approach. I would strongly recommend to all investors. It deserves a place on your bookshelf.
Invictus.
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