Value investing

Value investing has always been perceived as an intellectual discipline of sorts. But you would be surprised to know that the art is less mental and more temperamental. Before knowing what exactly value investing is, let us first understand what it is not. Fundamental analysts do not necessarily classify as value investors. Technical analysts, who use historical data to predict price patterns, do not even need a mention. Value investors are those rare breed who have the art of buying securities which trade significantly below their intrinsic/fair value. Value investors also have the temperament to resist themselves from market gyrations. And there lies the distinguishing factor between winning and losing. Their low sentiment quotient scores over the intellect of an experienced professional.

Now, since we know what it takes to be a value investor, let us touch upon the key takeaways related to value investing as preached by Bruce Greenwald. Let us start with how one should go about finding value. We know that the market is a constellation and everyone has urge to find the pole star. Basically, here is how one should start his search for that star.

The first step entails looking out for sectors where such gems may be located. Second is to find a strong valuation approach that has applicability across sectors. This makes valuations more comparative. Third is to determine what price to pay. And that's where the concept of margin of safety comes into play. Value investors have the knack of spotting winners at a reasonable price (below intrinsic value) when market is ignorant of them.

Last but not the least, is to have patience. You have to wait for Mr Market to offer you the right bargain. Let us tell you that sitting and doing nothing requires a lot of courage. That's a great hallmark of a value investor.

All these basic tenets that we have touched upon have been deeply explained by Bruce Greenwald in his book "Value Investing". If one really wants to learn the art of value investing then this book is a must have in your bookshelf.

By J Mulraj