The past and present of value investing

Studying Buffett is investors’ first step

A few days ago I published “Why I prefer growth stocks instead of value stocks?” In the article, based on readers’ responses, I think I still have to clarify my views on value investing to readers.

The precious thing about Buffett is that he can use popular and simple vernacular, coupled with selfless disclosure of his life’s practical experience, to illustrate the profound truth of investment. My own verification and experience also prove that he is not deceiving. I often advise readers or investors that studying Buffett is the first step in stock investment.

Growth is part of value

In 1992, he stated to shareholders: “Value and growth many investment professionals see any mixing of the two terms as a form of intellectual crossdressing. We view that as fuzzy thinking. In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive. In addition, we think the very term value investing is redundant. What is investing if it is not the act of seeking value at least sufficient to justify the amount paid?”

Buffett has abandoned cigar butt investment

In fact, as Buffett gets older, his mentor Graham’s investment method is the most typical value investing (that is, only looking at the financial report numbers and focusing on quantitative work) has gradually drifted away. At the beginning of his investment career, Buffett also used Graham’s cigar butt investment method completely. Later, he read Fisher’s book “Common Stocks and Uncommon Profits and Other Writings”, and was influenced by his deputy, Charlie Munger. Later, the value-based investment approach advocated by Graham got worse and worse. The main difference between the two is that Buffett considers more non-quantitative factors when investing, and he later realized that as I emphasized in the 5-2 section of my book “The Rules of Super Growth Stocks Investing”, such as business management, the ability of the team, regulatory supervision, corporate culture, the characteristics of the company’s industry, business model, whether the company has lasting competitiveness, etc. cannot be quantified, and these non-quantitative factors sometimes have a greater impact on stock prices, especially the long-term trend of stock prices.

Graham’s time can use his value-based investment method to find many worthy investment targets. In his time, there were about 600 stocks on the New York Stock Exchange (now there are about 4,000 listed companies in the U.S. stock market). In the 1929 crash, about one-third of stocks with a stock price lower than the net worth of the company could be found, and there were even 50 stocks, the stock price is lower than the cash on the books held by the company. However, if you insist on using Graham’s most primitive value-based investment method (relying only on numbers or P/B values), it is very difficult to find suitable stocks. Only at the bottom of the market that is rare in ten years, there will be a few opportunities, and such opportunities are becoming less and less in US stock market; there are many reasons for this, so I won’t go into details here. The times are evolving, and so must investment methods! This is also the great thing about Buffett.

Don’t dig into the nouns, it’s not important at all

Finally, I have always been very disapproving of the categorical, preconceived, one-size-fits-all, and dichotomy approach that people use to distinguish between value investment and non-value investment, growth stock investment or value investment, and so on. Our world is not black or white, especially the world of investment, not to mention investment is an art, not a science, and it’s impossible to have any formulas. I have never understood the meaning of distinguishing or marking investment styles, investment types, or the purpose or starting point of differentiating investors; can investors who put the label of investment in growth stocks be able to make money? Will those who are labeled as value investors definitely not make money? . Deng Xiaoping once said that “no matter black cats or white cats, those who can catch mice are good cats.” The purpose of investment is to make profits. As long as it can be proved that the investment method that can withstand the actual market verification and can continue to make profits is a good investment method; as for investment principles, investment strategies, and investment methods, it should not be named. It’s the point, and arguing about these terms has completely lost the focus – investment needs gains eventually.

Finally, without growth, where is the value of the stock?


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