‘The Art of Value Investing’ is a masterpiece on Value Investing, In summary, there are very valuable lessons to take way from the talk on Investing in general and some great advice on Personal Finance as well.
John Heins and Whitney Tilson are two great value investors, having great exposure from investing business, they emphasized that investing is really hard, and its not easy to find bargains in all the situations. Another important thing is Circle Of Competence, and its been an advice from almost all great value investors including Warren Buffet and Charlie Munger. One should always ask few questions before jumping into any stock, that are but not limited to, whether or not I understand the industry ? If the answer is Yes, the second questions is How Well ?, followed by the questions like, do I understand the company dynamics ? And business model ? And whether the future of this company is predictable or not ? These are few very important questions one should answer before even thinking of jumping into any stock.
There are always two values of a stock, First what the market is offering and the second is stock’s actual value, the best time to buy any stock is when there is a spread between its actual and market value, that is its intrinsic value, means when the actual value is more than what the market is currently offering.Also they emphasized on Variant Perception, which is finding satisfactory arguments on why the stock is mispriced, just finding value spreads do not help, the analysis must be backed by strong arguments and rational reasons on why the market is mis-pricing the stock.
In “The Art of Value Investing” Whitney talks about risk in depth. Measuring risks is one a key factor in valuation, value investors religiously focus on the down side risk, its really very important to be dynamic in investing, value investing is betting against markets and there is ample chance of failure. In the talk they highly advice to look for down side risk, and if down side risk is greater than the upside potential, one must not invest in that stock.
Lastly, they shared their workings on Google’s stock, they also shared key screening strategies they follow to pick stocks, but for an individual with full time job and who can not value a company properly they highly advice to look for either some better investor or fund manger, or simply put some of their portfolio in S&P 500 Index. They argued that value investing is still a successful strategy but its getting harder to pick value stock, and avoiding value traps.
Watch full video on the link below, its highly recommended for individual and professionals to watch and keep notes on the advice these great values have to give.