What is value investing? The Old School Value version
Posted on | October 5, 2009 | No Comments
Jae Jun over at Old School Value has an interesting post on how he defines Value Investing. I agree with everything he says. Which is no surprise since he is a smart guy with lots of good ideas. But there are a variety of opinions about what exactly value investing is, this is one perspective. For the beginning investors you will note a few interesting distinctions. Jae makes the Ben Graham division between investors and speculators. The latter in the value investing world represent what Dick Cheney is to liberals, the thing to avoid at all costs. I will give my working man synopsis of his post.
Butt ugly- his words not mine, although it is hard to argue with. The idea is to look for value where most other investors are not looking. If she has a moustache look closely. But just because its ugly doesn’t mean it is worth investing in. Do your research. Think the opposite of Apple. Nothing about Apple screams value stock, but I love their computers.
Keep it simple stupid- O.k. I added the last word. But as Jae says, if your analysis says a stock in the toliet is not going to go bankrupt AND has a huge margin of safety, you may not need to know a whole lot more. “Correct data + incorrect data = incorrect data.” Words to remember.
Downside Protection- Jae looks for assets to protect the downside. Cash is king, everything else gets discounted, sort of.
Understanding the Definition of Risk- There are only 3 items and here they are:
- Probability of losing all your money
- Having too many scenarios, too many variables and over complicating
- Not protecting the downside
After that Jae lists some value and net net stocks on his watch list. Some are also on my watchlist, but you should go to his site to look at his list.
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