These days the world of value investing seems to get a bad rep. You only have to take a brief look online to encounter various blog posts, videos and such claiming that the practice is ‘dead’ or ‘outdated’ etc. but from what we can see many of these claims are not built upon a good or even decent attempt to understand the practice itself. Many of these think pieces will demonstrate their point using stock issues which would by our understanding not have been worth of an ‘investment’ quality title according to the works outlined by Benjamin Graham, be it because the current ratio was not high enough, there was a large amount of debt, the current assets had recently been dissipating, there were frequent recurring non-recurring charges, continuous poor decisions by management or any other number of reasons. Instead a previous low P/E ratio perhaps accompanied with a low P/BV ratio is shown, alongside the a share price decline with some king of reference that despite the low P/E ratio, if you had invested in said shares at the time your capital would have depreciated. As we aim to highlight on this site, it is to our understanding that value investing is a multifaceted principle which cannot be merely summarised with one or 2 financial ratios. There is a host of quantitative and qualitative factors for each investor to consider when aiming to reach what is hopefully their final destination i.e. deciding if the current market price of a security is selling for more or less than it’s intrinsic value. It appears the following quote, has gone amiss these days and we aim to delve into it forever more:
“Quantitative data are useful only to the extent that they are supported by a qualitative survey of the enterprise”. [1]
References
- Graham, B., Dodd, D.L., Security Analysis, (6th edition), (Warren, B.E., Klarman, S.A., Grant, J., Laderman, J.M., Lowenstein, R., Marks, H.S., Merkin, J.E., Berkowitz, B., Greenberg, G.H., Greenwald, B., Abrams, D), McGraw-Hill Education, 2008 – {ISBN 10: 0071592539 / ISBN 13: 9780071592536 & ISBN-13: 978-0071592536 / ISBN-10: 0071592539}
- Graham, B., The Intelligent Investor, (Revised Subsequent Edition), (Warren, B.E., Zweig, J), Harper Business, 2006 – {ISBN-10: 9780060555665 / ISBN-13: 978-0060555665}