Turning your back on speculation and becoming a value investor would be impossible without an understanding of the tenets of value and valuation.
In this interview with the ASX’s Tony Hunter and my friend Michael Glennon, we explore aspects of valuing companies as well as the practical application of a value investing mindset.
Enjoy!
This rollercoaster is clearly going too fast. But, as always, there is a screaming bargain out there somewhere. I reckon its the fund managers.With their expenses more fixed than variable, most additional revenue ends up as profits and dividends. Even without inflows of FUM, revenues will jump in proportion to the returns being achieved, often 20%+. Then there is the weight of conservative money coming out of cash also boosting FUM. But most importantly, a managers most important advertising tool is his past performance. These numbers will (are already) going through the roof as the denominator in this calculation continues to diminish…..go back 1,3 & 5 years and look at the numbers….all assisting 2013 return calculations. You will see fund managers reporting 40%+ in 2013. That means massive profit growth, a rare thing in this current market. Check out KAM.It waits on the launch pad.
Thanks for sharing roger. I enjoyed it. I like the fact that value investors all have their own specific idea as to what constitutes value. Whether it be quantitative or qualitative or a quantitative approach to finding quality. The key I believe is when beginning to be a value investor decide what this is.
I believe the business is more powerful than than the manager so I do look at the company first although a good business with bad management will still perform poorly.
I still believe that value investing is all about one thing and that is profiting from businesses where the perception is different to a form of reality. This gap then will close as the perception shifts through some type of catalyst.
A quality business will see its value take care of itself as its favourable economics work for it and at some point there will be that catalyst whether it be the results being too good to ignore, being added to an index or being discovered by another big investor.
Your point on jbh and the life cycle is still a very important one for investors to learn. It can be easy to get carried away with forecast growth based on historical results and take it as a given even though those areas of growth still have to come intrinsically from something.
It’s also a fascinating thin to read about people’s valuation models so as to understand where they think the value comes from. I started off as a discount to book and Nta person but after research have since changed to a more return driven model. I realised that many quality companies would be missed as they are worth more alive than dead.
One thing I think all value investors can agree is that patience is a must.