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Value Investing

Discussion in 'Other Asset Classes' started by Hodor, 20th Jun, 2016.

  1. Hodor

    Hodor Well-Known Member

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    Value Investing may be of interest for those looking to add direct stocks to their portfolio with a long term view. So hopefully it will be of interest to a number of people here.

    The essence of Value Investing is to find and invest in stocks that are currently trading at a discount to their intrinsic value and is a slap in the face of those that believe the Efficient Market Hypothesis/Theory. Many of the most successful investors over the long term followed the ideas of Value Investing, such as Peter Lynch and Warren Buffett.

    Some basics from Buffett

    Look for companies that are easy to understand, this helps with valuing the company and understanding how it makes a profit.

    Look for companies with a sustainable moat, a moat is a competitive advantage that gives it an advantage over the competition.

    Look for companies that are cheap! Finding the Intrinsic Value of a company is not an exact science but involves looking at the companies financials along with other less tangibles.

    Don't buy anything you wouldn't be happy to have in your portfolio for the next five years.

    As I am new to all this I hope I haven't butchered the brief summary too badly.

    It is possible the small investor independent investor has advantages over the big guys in that we can take meaningful positions in smaller companies. We can take a long term view and be less index aware.

    Hopefully this thread will be useful
     
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  2. bob shovel

    bob shovel Well-Known Member

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    So who do i give my money to? :D

    Is 10k a good starting point for shares? Or is that just chicken feed and no point? (Yes you're now my advisor;) )
     
  3. The Falcon

    The Falcon Well-Known Member

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    Geez, covered some ground there Hodor :) Historically value investing was just buying cheap stuff ie. net/nets (the origin of value investing - read Ben Graham, this is where Buffett started), special situations (including taking activist positions as per early Buffett), Deep value (often taking strong contrarian positions that don't pay off!, hidden assets etc) to what you describe - Value as being directly linked to Quality - ie. Moat theory (sustainable competitive advantage).

    Value investing means a lot of different things. I'd consider myself a small "v" value investor, following moat theory in general with an income tilt :) I've tried deep value but I don't have the patience or conviction in my judgements, and its a lot of work which often doesn't pay off. I think the ubiquitous use of filters doesn't help. ie. Net/nets barely work anymore - they worked when they were unfollowed, when a secret is revealed the value is quickly arbitraged away "who doesn't know that??" Howard Marks :)

    If people are really keen to dig deep I can provide some links.
     
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  4. Hodor

    Hodor Well-Known Member

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    It is a great starting point :) Key is to have realistic expectations, 10k isn't going to have you retired any time soon. 10k compounding in quality shares should offer an excellent return long term.
     
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  5. kum yin lau

    kum yin lau Well-Known Member

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    Hi, 10K isn't a lot. It's a start. When I started buying shares, I had $6666.67 to invest. Every month, a fairly big % of my income went into investment. At the end of 7 years, I had invested about 80K and when I sold all the shares, I made 165K.

    Hard to forget!!

    KY
     
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  6. wombat777

    wombat777 Well-Known Member Premium Member

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    @bob shovel, throw in automatic reinvestment of dividends and you get forced savings which helps with growth of your portfolio. Add compounding into the mix and regular top-ups and you can grow a portfolio surprisingly quickly. Selecting stocks/funds that have healthy dividends helps.

    Dividend yields too high can indicate risk.

    I've been fortunate with when I've bought REA and TRS as they have had some good growth. Although REA's dividend return is low.

    Edit - don't forget also the effect of franking credits
     
    Last edited: 23rd Jul, 2016
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  7. bob shovel

    bob shovel Well-Known Member

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    images.jpg

    I have some reading to do :oops: but sounds like what i want:)
     
  8. wombat777

    wombat777 Well-Known Member Premium Member

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    Lol. Funniest thing I've seen all day.

    Edit - @bob shovel , I posted a link to this calculator with a screenshot in another thread. Plug in some numbers. As well as starting amount ( say $10k ), try dividend amount 4%, share price growth 5% and a regular top-up ( try $1000/month ) to see the effect.

    DRIP (Dividend Reinvestment Plan) Calculator
     
    Last edited: 23rd Jul, 2016
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  9. bob shovel

    bob shovel Well-Known Member

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    Hmmm
    If this was a shares forum the first response to my questions would be "but what's your strategy or end goal" which id reply "to do as little as possible and make bucket loads of money! :D "
    ....i need a shares BA ;) delegate
     
  10. Blueskies

    Blueskies Well-Known Member

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    I really like the priciples of value investing, though in practice I have found that it sounds easier than it really is. Sometimes the market IS efficient and there are good reasons for a company trading at a low PE, high yield, even though it is not immediately obvious why. Next thing you know they declare an impairment or cut their dividend and the 'value' evaporates. Or you get great yield for years but no growth. Having said that i still keep plugging away, learning all the time.

    For an australian focus on value investing I find Roger Montgomery blog/podcasts interesting: ROGER MONTGOMERY
     
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  11. inspiredbyprop

    inspiredbyprop Well-Known Member

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    Just wondering if you invest in the montgomery fund? Although they only started in 2012, they're already outperforming market by 30%+. Min. investmest 25l, however I couldn't find anymore information without providing my contact info.
     
  12. Blueskies

    Blueskies Well-Known Member

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    No, but I would consider it, I do like their investment philosophy.
     
  13. Bran

    Bran Well-Known Member

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    I was given a copy of Benjamin Graham's biography last night. Hoping it makes for a good read - seems a chronological biographic chapter followed by the impact this chapter had on his investment strategy. I read 2 pages last night before I zonked out.
     
  14. BingoMaster

    BingoMaster Well-Known Member

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    Ben Graham's writing can also have that effect! He is the father of value investing, but such a thorough and dry writer it put me asleep when I tried to read him last year....
     
  15. The Falcon

    The Falcon Well-Known Member

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    Good Luck :)