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Invest Like a Guru – How to generate higher returns at reduced risk with value investing 2017(Charlie Tian)
https://bbs.pinggu.org/thread-6755810-1-1.html (Page 46-60)
Deep-Value Investing and Its Inherent Problems
阅读到的有价值的内容段落摘录
The idea of deep-value investing is straightforward; it is simply “buying dollar bills for 40 cents,” as explained by Buffett, who in his early years experienced tremendous success practicing deep-value. investing. Deep-value investors try to buy the stock of a company for a price that is discounted from the assessed value of the assets, then wait for the gap between the price and the value to close. Deep-value investors require a minimum gap between the price and the assessed value in order to buy. This minimum gap is called the margin of safety, which is important to protect investors from errors occurring during the assessment of the value.
Benjamin Graham andWalter Schloss were deep-value investors. Graham said in his classic book, The Intelligent Investor, that to avoid errors and ignorance, it is safer to have a diversified portfolio, which may consist of more than a hundred companies. In assessing what the stock is worth, or its value, deep-value investors focus on the balance sheet of the company and have no interest in its operations. There are four ways to estimate the company’s value, depending on how conservatively investors want to go with the valuation.
I highly recommend to read Buffet’s letter to shareholders. Continuous lifelong learning changed me a lot, and I now look at everything in life, even if it is not related to business and investing, from a totally different angle. Of course, I apply what I learned in my own practice of investing research, and in the following chapters I will detail how to apply this knowledge in your investing. I hope to establish the right investing framework so that you can invest in one with a solid foundation and avoid many of the mistakes that investors could have averted, and ultimately achieve long-term success. Benjamin Graham and Walter Schloss were deep-value investors. Graham said in his classic book, The Intelligent Investor, that to avoid errors and ignorance, it is safer to have a diversified portfolio, which may consist of more than a hundred companies.5 In assessing what the stock is worth, or its value, deep-value investors focus on the balance sheet of the company and have no interest in its operations. There are four ways to estimate the company’s value, depending on how conservatively investors want to go with the valuation.
The risk in investing in these companies is that most of them are not well-run and may be continuously losing money. To reduce the risk, GuruFocus added the option that users can filter for companies that have positive operating cash flow. In this way, the companies will
likely be able to maintain their operations without burning through their cash. According to Graham, some of these companies may well become insolvent as economic conditions worsen, so it is important to hold a diversified basket of them. Though the strategy worked well for Graham, these bargains are no longer around for modern value investors seeking to build a diversified portfolio. During the drastic decline of the stock market in 2008, this screener had a long list, but it has gradually dwindled.
This net-assets-bargain portfolio underperformed the indices from the very beginning and would continue to generate deep losses in all the periods following, even as the broad market continued to gain. As we continued to observe the performance of deep-bargain
portfolios, we initially didn’t have many to include in the portfolio with enough margin of safety. If we invested in the ones that appeared, the performance was typically poor and significantly lagged the market. Compared with Graham’s time, finding companies that have
large displaced prices relative to their liquidation values is much easier due to the advances of technology. As a result, the market is getting crowded and not many deep bargains exist. Especially true in recent years, when the interest rate has been low, the valuations for all assets have been lifted to much higher levels, and it therefore becomes difficult to find deep bargains relative to the net assets on a company’s balance sheet. The best time to invest in these deep bargains is when you can find plenty of them, especially when panic and forced selling are prevalent in the market due to a market crash. During such a period, many stocks that deserve higher valuations are also beaten down on prices, especially those with relatively poor business fundamentals. When the overall market valuation is high and everything else is rising, those dropping and appearing in the deep-bargain screener
probably deserved to be traded by low valuations.
阅读到的有价值信息的自我思考点评感想
Buffett coined the term “cigar-butt investing” for the strategy of buying mediocre businesses at prices that are much lower than the companies’ net-asset values. He said the approach is like “a cigar butt found on the street that has only one puff left in it [and] may not offer much of a smoke, but the ‘bargain purchase’ will make that puff all profit.”
Just as Buffett wrote in his 1989 shareholder letter: “Time is the friend of the wonderful business, the enemy of the mediocre.” Because he paid dear prices for buying unpromising businesses, Buffett learned his lessons. He considered his buying of the control of Berkshire Hathaway his biggest mistake, which eventually cost Buffett and his partners $100 billion
Unless you are a liquidator, that kind of approach to buying businesses is foolish. First, the original ‘bargain’ price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces—never is there just one cockroach in the kitchen. Second, any initial advantage you secure will be quickly eroded by the low return that the business earns
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