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The business of value investing – Six essential elements to buying companies like Warren Buffett- Charlie Tian 2009
https://bbs.pinggu.org/thread-695143-1-1.html (Page 187-183)
The benefits of a buy and hold approach
Any hidden value in the assets
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The stock market exists to let investors buy stakes in businesses, and business owners know that temporary setbacks are inevitable. You don’t see them rushing to sell their business to the highest bidder, and neither should you. The market should serve your investment decisions, not guide them. Many investors knowledgeable in market history will correctly argue that a simple buy and hold strategy is not as sound as all of its proponents make it out to be. The most often cited defense of this assertion is the performance of the Dow Jones Industrial Average. The goal of the value investor is simple: to buy those securities trading at an undervalued price, sell securities trading at a fairly valued price, and avoid those securities trading at overvalued prices. These actions are done without regard to the general level of the markets. Obviously, market levels do play a role in this approach by determining the abundance of securities that would fall into each category. Nonetheless, bargains can be found when the market is fully valued, often in places where no attention is being paid. When the market was in love with technology and the Internet some 10 years ago, investors could have found wonderful value in the steel industry.
The advantages of a buy and hold investment approach has been deeply ingrained over the past several decades as a sound approach for investment. The advantages of reduced transaction costs and deferral of taxation are widely known. And the impressive power that compounding can have on small incremental sums of capital is also understood. But investors often mistake buy and hold to mean buying any equity at any price and just waiting. The value gained from any investment rests on the discount from intrinsic value that is obtained when the investment is acquired, which in turn is determined by the price paid for the investment. So the two elements of buy and hold are defined by these two parameters. Investors should seek to buy those securities with market prices that are below intrinsic value and accompanied by a satisfactory margin of safety. Then the security should be held until the conditions of undervaluation and satisfactory margin of safety no longer hold up. Money is made at the time an asset is bought; it’s just not realized at the time. When an asset is sold, the ultimate price paid will determine the corresponding gain or loss recorded. If a security is to be bought when the price is comfortably below intrinsic value, then it should be sold when the price closely approximates intrinsic value. Because intrinsic value is, by definition, a moving target, then the buy - and - hold approach is at the mercy of the intrinsic value of the business. Thus, when hearing the value investor promote buy and hold, understand the implicitly assumed underlying assumptions with regard to intrinsic value and price paid. There are two general ways in which a security can qualify as being undervalued with respect to intrinsic value:
1. Market price is comfortably below intrinsic value, or in certain cases net asset value.
2. Growing intrinsic value provides undervaluation.
阅读到的有价值信息的自我思考点评感想
It would appear that the implied book value of 50 a share against a share price of 5 a share reflects a grossly undervalued asset based on liquidation value alone, saying nothing of future earnings power. However, the more conservative, and necessary, balance sheet analysis would require investors to value each individual item in the balance sheet and make the necessary adjustments to reflect the current market conditions. To provide maximum protection for the investor, very conservative adjustments were made to the asset side of the balance sheet. On the fixed asset side, conservative and prudent judgments had to be made with regard to possible market values for the fixed assets.
It might come as a shock to some that value investors love growth. While the investment world likes to separate investors as value oriented or growth oriented, value and growth are one and the same. Growth is a major determinant of value creation. The only difference is that value investors have a limit as to how much they will pay for growth. The greatest investment that a value investor can find often is referred to as a growth at a reasonable price (GARP) business. The logic is simple: If you buy a security today and that business continues to earn greater profitability and free cash flow, the intrinsic value also will grow. And as that intrinsic value grows, the investment becomes more and more undervalued from the price paid. Ben Graham, the man commonly known as the architect of value investing, focused on finding businesses selling at less than the net liquidating value of their assets. I think most investors will agree that today’s markets are much more efficient when compared to the markets that Ben Graham and even Warren Buffett (during his early years) were involved in many decades ago. But Mr. Market is not perfect, and the markets occasionally will confuse true value with market value. During the Internet boom, for example, market valuations far exceeded intrinsic valuations for many companies. Similarly, after the bear markets of the early 1970s, plenty of stocks were selling for cheap and discounting any future earnings growth. By definition, investing is simply the acting of seeking value by attempting to buy something for less than it is worth. You find such investments in one of two forms. The first, discussed earlier, are those businesses that would sell for more than the stated market price in a private transaction. The second, and more preferred form, is buying cheap growth. Believe it or not, most “value investors” prefer the latter over the former. Value is created as a company continues to grow its business and, consequently, its profits. The best investment is one that promises steady growth and is selling at a discount to that growth. For instance, a likely GARP investment would be a business that trades for, say, 10 times earnings and grows its profits by 15% or more a year, along with similar returns on equity. It cannot be stressed enough that discovering a business with future growth prospects selling at a reasonable price is only the first step in the investment process. Never, ever invest simply because such conditions exist. But if you do find them, you can go on to determine whether the business can sustain this growth for a period of years and whether this growth will require high levels of capital expenditures. As the company grows, so will intrinsic value and, ultimately, so will the market value.
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