Bruce Greenwald, who holds the Robert Heilbrunn Professorship of Finance and Asset Management at Columbia Business School, is coeditor of the forthcoming sixth edition of the value investing classic Graham and Dodd's Security Analysis (McGraw Hill).
After watching stocks plummet this year, he's sizing up the opportunities seen through the lens of value greats like Warren Buffett who perceive a rare chance to start buying on the cheap. Excerpts:
What's the current environment like for a value guy?
I'll tell you the one really nice reason to be a value investor: When things like this happen, you cannot help but go nuts at the opportunity. What this looks like is the end of 1974, where good stocks are selling at three times sustainable earnings and stocks that normally wouldn't have sold at less than 20 times earnings are selling at 10 times earnings. These are exciting times. The short-term issue is that in the near term there will be a painful macroeconomic environment and we don't know how long it will last.
Read the full article
Showing posts with label value investing. Show all posts
Showing posts with label value investing. Show all posts
Tuesday, November 11, 2008
Sunday, October 12, 2008
Buffett-style investing shines
VANDERMIR C.T. SAY started investing when he was 12 years old. That was 22 years ago. He recalls picking stocks the way he would play darts. Not anymore. For the last decade or so, Vandermir has become a Warren Buffett-follower, investing only in good companies at good prices and buying them for the long haul.
In the last couple of months, amid cascading losses in markets all over the world, Buffett’s value investing philosophy has attracted.
The fact that Buffett, the world’s richest man according to Forbes magazine, has emerged as Wall Street’s knight in shining armor after injecting funds into Goldman Sachs and General Electric a week ago has most likely upped the ante significantly on value-style investing.
And if the sale of Buffett’s first and only authorized biography “The Snowball: Warren Buffett and The Business Of Life” written by Alice Schroeder (editor of Berkshire Hathaway’s layman-friendly annual reports) is any indication, the interest is just heating up. Just days after it hit bookstores in Sept. 29, the book has claimed a top spot on Amazon’s best-selling book list.
Read the full article
In the last couple of months, amid cascading losses in markets all over the world, Buffett’s value investing philosophy has attracted.
The fact that Buffett, the world’s richest man according to Forbes magazine, has emerged as Wall Street’s knight in shining armor after injecting funds into Goldman Sachs and General Electric a week ago has most likely upped the ante significantly on value-style investing.
And if the sale of Buffett’s first and only authorized biography “The Snowball: Warren Buffett and The Business Of Life” written by Alice Schroeder (editor of Berkshire Hathaway’s layman-friendly annual reports) is any indication, the interest is just heating up. Just days after it hit bookstores in Sept. 29, the book has claimed a top spot on Amazon’s best-selling book list.
Read the full article
Thursday, September 18, 2008
Charles Brandes: Value vs. Glamour: A Global Phenomenon
In 1934’s Security Analysis, Benjamin Graham and David Dodd argued that out-of-favor stocks are sometimes underpriced in the marketplace, and that investors cognizant of this phenomenon could capture strong returns. Conversely, the duo theorized, prices for widely popular stocks often are buttressed by high expectations and could be vulnerable if these expectations prove too enthusiastic.1
The philosophy espoused by Graham and Dodd is now widely known as value investing, and the unpopular “value” stocks they advocated often are associated with companies experiencing hard times, operating in mature industries, or facing similarly adverse circumstances. Alternatively, typically fast-growing “glamour” companies frequently function in dynamic industries with a relatively high profile. This stark contrast in attributes leads to a natural question: which stocks have performed better, value or glamour?
While this is not a simple inquiry, we believe historical analysis can shed light on the relative performance of value stocks and glamour stocks – largely because their divergent traits often manifest in their respective valuation metrics. Specifically, value shares typically feature low price-to-book, price-to-earnings, or price-to-cash flow ratios, while glamour stocks generally are characterized by valuation metrics at the opposite end of the spectrum. As a result, these metrics can be used to split a sample of equities into either the value or the glamour camp – and subsequently track each group’s performance over time.
Read the full article
The philosophy espoused by Graham and Dodd is now widely known as value investing, and the unpopular “value” stocks they advocated often are associated with companies experiencing hard times, operating in mature industries, or facing similarly adverse circumstances. Alternatively, typically fast-growing “glamour” companies frequently function in dynamic industries with a relatively high profile. This stark contrast in attributes leads to a natural question: which stocks have performed better, value or glamour?
While this is not a simple inquiry, we believe historical analysis can shed light on the relative performance of value stocks and glamour stocks – largely because their divergent traits often manifest in their respective valuation metrics. Specifically, value shares typically feature low price-to-book, price-to-earnings, or price-to-cash flow ratios, while glamour stocks generally are characterized by valuation metrics at the opposite end of the spectrum. As a result, these metrics can be used to split a sample of equities into either the value or the glamour camp – and subsequently track each group’s performance over time.
Read the full article
Wednesday, September 17, 2008
Leucadia National - Consistently Ahead of the Curve
Everyone has heard the theory that no investor can expect to consistently beat the market over the long term; the stock market today is simply too efficient. Of course, in most cases this sentiment is correct; it is exceedingly difficult to be on the right side of the market year after year. However, there are exceptions to every rule and one exception to this investment adage is Leucadia National Corp. (LUK). To be fair, LUK does not outpace the market every year, but over the long haul its performance is undeniable. From 1979 through the end of 2007, this diversified holding company has returned a gaudy 26.2% per year versus an annualized 9.8% return on the S&P 500. Yet, there is relatively little buzz about LUK and also fairly little information available about the company—but this is certainly a story that should be told.
The key to Leucadia’s success has to be the talented men that steer the strategic vision of the company: Ian Cumming and Joseph Steinberg. These two gentlemen have successfully navigated the ups and the downs over the last few decades always with a firm grip on macroeconomic trends. For example, as they describe in their annual letter to shareholders, after observing the simultaneous rise of population and standard of living in Asia (China and India in particular), Cumming and Steinberg sensed opportunity. Realizing that infrastructure expansion in these regions would surely be necessary to foster further growth, they invested in copper and steel mining operations. As they surmised, global demand for basic materials ramped up in a big way—with prices following suit—and now their investments are paying off. This is just one demonstration of the fundamentally sound and profitable vision of these two leaders. Their management style is to find and exploit under-appreciated value in the marketplace, and in my opinion it is an approach that is part science and part art.
Read the full article
The key to Leucadia’s success has to be the talented men that steer the strategic vision of the company: Ian Cumming and Joseph Steinberg. These two gentlemen have successfully navigated the ups and the downs over the last few decades always with a firm grip on macroeconomic trends. For example, as they describe in their annual letter to shareholders, after observing the simultaneous rise of population and standard of living in Asia (China and India in particular), Cumming and Steinberg sensed opportunity. Realizing that infrastructure expansion in these regions would surely be necessary to foster further growth, they invested in copper and steel mining operations. As they surmised, global demand for basic materials ramped up in a big way—with prices following suit—and now their investments are paying off. This is just one demonstration of the fundamentally sound and profitable vision of these two leaders. Their management style is to find and exploit under-appreciated value in the marketplace, and in my opinion it is an approach that is part science and part art.
Read the full article
Monday, September 15, 2008
Get Ready for Rising Prices
by David Dreman
The markets, the dollar and commodity prices have all plunged and then rebounded. Financials are still falling. Economic news both in the U.S. and abroad continues to get worse. How do you chart a course in all this? Through all the smoke, and the cacophony of distressed voices on the financial battlefield, I find several things you can sensibly do.
Before you do any of them, you need to recognize the dilemma that the Federal Reserve and the Administration find themselves in—and are powerless to resolve. As investors are painfully aware, banks, investment banking firms and Fannie Mae and Freddie Mac (which have almost become penny stocks) are still drowning in seemingly endless pools of bad mortgages. Despite ample borrowings from an indulgent Fed, banks are far less liquid than when the crisis began. As loan defaults continue, they’re going to have to write down their portfolios even more, further impairing their capital and shrinking their stock prices. They’re reaching a point where they can’t raise new funds without badly diluting current shareholders. Thus the input of new funds by the Fed hasn’t lowered rates for mortgages or raised the financial institutions’ liquidity.
Consumers are trapped by stagnant wages, depleted savings and falling house prices. They’re slipping behind on their mortgage and home loan payments, and their spending is being squeezed harder than in more than a generation. So the Fed and the Treasury have no choice but to keep interest rates low until the current liquidity problems are under control. Not to do so would result in a steep recession and the threat of a financial panic. Yet keeping rates down risks damage to the economy from the highest inflation since the 1978–81 period, when prices rose at an average of 11% a year. That’s the Fed’s dilemma.
The July Consumer Price Index was 5.6% higher than a year earlier, the Producer Price Index 9.8% higher. Import prices, thanks to a weak dollar and expensive oil, are 21.6% above a year ago, the largest one-year increase since the index began in 1982. Optimists predict that energy, raw material, commodity and import prices, the strongest forces behind rising inflation, are likely to reverse direction and drop significantly. Wishful thinking. The world is short of oil, and the appetite for it keeps growing at almost double the rate of new discoveries. There hasn’t been a year since 1984 when new finds outstripped consumption. Even if a recession slows down oil use in the U.S. and Europe, demand will still increase in China, India and the Middle East. Rapid industrialization in those regions will continue to drive up commodity prices.
Read the full article
The markets, the dollar and commodity prices have all plunged and then rebounded. Financials are still falling. Economic news both in the U.S. and abroad continues to get worse. How do you chart a course in all this? Through all the smoke, and the cacophony of distressed voices on the financial battlefield, I find several things you can sensibly do.
Before you do any of them, you need to recognize the dilemma that the Federal Reserve and the Administration find themselves in—and are powerless to resolve. As investors are painfully aware, banks, investment banking firms and Fannie Mae and Freddie Mac (which have almost become penny stocks) are still drowning in seemingly endless pools of bad mortgages. Despite ample borrowings from an indulgent Fed, banks are far less liquid than when the crisis began. As loan defaults continue, they’re going to have to write down their portfolios even more, further impairing their capital and shrinking their stock prices. They’re reaching a point where they can’t raise new funds without badly diluting current shareholders. Thus the input of new funds by the Fed hasn’t lowered rates for mortgages or raised the financial institutions’ liquidity.
Consumers are trapped by stagnant wages, depleted savings and falling house prices. They’re slipping behind on their mortgage and home loan payments, and their spending is being squeezed harder than in more than a generation. So the Fed and the Treasury have no choice but to keep interest rates low until the current liquidity problems are under control. Not to do so would result in a steep recession and the threat of a financial panic. Yet keeping rates down risks damage to the economy from the highest inflation since the 1978–81 period, when prices rose at an average of 11% a year. That’s the Fed’s dilemma.
The July Consumer Price Index was 5.6% higher than a year earlier, the Producer Price Index 9.8% higher. Import prices, thanks to a weak dollar and expensive oil, are 21.6% above a year ago, the largest one-year increase since the index began in 1982. Optimists predict that energy, raw material, commodity and import prices, the strongest forces behind rising inflation, are likely to reverse direction and drop significantly. Wishful thinking. The world is short of oil, and the appetite for it keeps growing at almost double the rate of new discoveries. There hasn’t been a year since 1984 when new finds outstripped consumption. Even if a recession slows down oil use in the U.S. and Europe, demand will still increase in China, India and the Middle East. Rapid industrialization in those regions will continue to drive up commodity prices.
Read the full article
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