Value-Stock-Plus

Informed Investing!

Investing is most intelligent when it is most businesslike - Benjamin Graham (1894-1976)

____________________________________________________________________

Value-Stock-Plus stands at No. 50 in the list of Top 100 Finance Blogs  by ValueWiki

Recognised by The Economic Times as one of the most popular financial blog

Updated! Compilation on Warren Buffett, Rakesh Jhunjhunwala & Charlie Munger
____________________________________________________________________

« Home | Random Readings » | Investing strategies for 2006 from market experts » | Stock markets: Play it safe! » | Benjamin Graham on Trading & Speculation » | Random Readings » | Life Cycle of Bull Markets » | Happy New Year 2006 » | Crazy Market Is Tough to Beat » | Random Readings » | Stephen Roach on India's future »

The buck’s in the biz, not in stocks

by Vivek Kaul/DNA Money I never attempt to make money on the stockmarket. I buy on the assumption that they could close the market the next day and not reopen it for five years — Warren Buffet

Among the many speeches Warren Buffet, the sage of Omaha, has delivered over the years, the most significant is The superinvestors of Graham and Doddsville, delivered to the students of Columbia Business School in 1984. The speech was delivered at a seminar marking the 50th anniversary of the publication of Benjamin Graham and David Dodd's all-time classic, Security Analysis.

Graham and Dodd, through their book Security Analysis, brought structure to the field of investments by creating an intellectual framework on which an investor could base his investment decisions. Before this book was authored, investment was an extremely disordered and muddled area.

Warren Buffet was a student of Graham and over the years, has remained committed to Graham's philosophy of 'value investing'.

In the speech he delivered at the Columbia Business School in 1984, he said, "The common intellectual theme of investors from Graham and Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in the market".

In the same speech he gives the example of the Washington Post Company, which in 1973 was selling for $80 million in the stockmarket. At the same point of time, the assets of the company were worth not less than $400 million. So, the price of the business was much less than its value. And that made it a good buy.

The stockmarkets are not efficient i.e., the price of a stock does not reflect everything that is known about the company's prospects, in particular, and the state of the economy, in general. Given this, there are stocks which sell at a price less than the price they should be actually selling at. So, the only thing that the value investor is bothered about is the worth of the business.

As Buffet points out in the speech, regarding the value investor, "He's not looking at quarterly earnings projections, he's not looking at next year's earnings, he's not thinking about what day of the week it is, he doesn't care what investment research from any place says, he's not interested in price momentum, volume or anything. He's simply asking: What's the business worth?"

The answer to this question obviously depends on the level of understanding the person has of that particular business. As Buffet points out about value investors in the speech 'While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock.'

The time of entry into a stock is also not important for a value investor. As Buffet remarks in the speech, "He doesn't worry about whether it's January, he doesn't worry about whether it's Monday, he doesn't worry about whether it's an election year.

He simply says if a business is worth a dollar and I can buy it for 40 cents, something good may happen to me". At the same time, Buffet admits that the idea of value investing does not go down well with people.

As he points out, "One sidelight here: it is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately with people or it doesn't take at all. It's like an inoculation. If doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference".

But how does the investor decide on the right value? Two investors having the same information about the same company can use different methods to put different values to the company. Another important concept that comes in here is margin of safety. What this means is that an investor should buy a stock at a big enough discount to allow some room for error in the estimation of the right value.

Posted by toughiee on Tuesday, January 03, 2006 at 12:00 PM | Permalink

A must read for every new investor. This bull market has created the feeling that people can double money in few days. If only businesses were like that

Posted by Anonymous Anonymous | 7:48 PM  

Very Good Write up....

Posted by Anonymous Anonymous | 1:27 PM  

Post a Comment

Search


Compilations

  • Warren Buffett
  • Charlie Munger
  • Rakesh Jhunjhunwala

Previous posts

  • Random Readings
  • Investing strategies for 2006 from market experts
  • Stock markets: Play it safe!
  • Benjamin Graham on Trading & Speculation
  • Random Readings
  • Life Cycle of Bull Markets
  • Happy New Year 2006
  • Crazy Market Is Tough to Beat
  • Random Readings
  • Stephen Roach on India's future

Archives

  • November 2005
  • December 2005
  • January 2006
  • February 2006
  • March 2006
  • April 2006
  • May 2006
  • June 2006
  • July 2006
  • August 2006
  • September 2006
  • October 2006
  • November 2006
  • December 2006
  • January 2007
  • February 2007
  • March 2007
  • April 2007
  • May 2007
  • June 2007
  • July 2007
  • August 2007
  • September 2007
  • October 2007
  • November 2007
  • December 2007
  • January 2008
  • February 2008
  • March 2008
  • April 2008
  • May 2008
  • June 2008

About This Blog

  • Get on Mobile
  • Atom Feeds
  • Disclaimer
  • Email to Owner

Blog Directories

  • Stockblogs

Related Blogs

  • DeepWealth
  • Dardashti
  • Ridgewood Group
  • Trading Day by Day

Business Papers

  • Economic Times
  • Business Standard
  • Business Line
  • Financial Express
  • DNA Money

Business News

  • Capital Market
  • Equitymaster
  • India Infoline
  • Moneycontrol.com
  • Yahoo! India Finance
  • ICICIdirect

Results

  • India Earnings

Quotes & Stats

  • Asian Indices
  • All Indian Quotes
  • Indian ADRs
  • Indian GDRs
  • Arbitrage
  • Sector Classification
  • FII Trends
  • MF Trends
  • NSE Heat Map
  • Insider Trading
  • BC/RD
  • BM (Company)
  • BM (Date)
  • BSE Bulk Deals
  • NSE Bulk Deals
  • NSE Block Deals
  • US Indices
  • US Pre-Market
  • US After Hours
  • CBOE VIX
  • European Indices
  • Commodity/Currency
  • Nymex Light Crude Oil
  • Nymex Natural Gas
  • Nymex Gold
  • Nymex Silver
  • Nymex Copper
  • All In One

Equity Analysis

  • Kotak Street
  • Moneypore
  • Geojit
  • IDBI
  • Naviamarkets
  • ET Big Bucks
  • BS Smart Investor
  • FE Investor
  • BL Investment World

Screeners

  • Equitymaster
  • ICICIdirect

Research Reports

  • Moneycontrol

Technical Analysis

  • ICICIdirect
  • Yahoo! Finance

E-Books

  • Value Investing
  • Trading & Technicals
  • Gann
  • Elliott Wave
  • Risk Management
  • Derivatives

Misc. Links

  • BSE
  • NSE
  • SEBI
  • SEBI Edifar
  • Corp. Filings
  • WatchOutInvestors

Global Research

  • Morgan Stanley GEF
  • Hussman Funds

Interactive

  • Online Chat
Subscribe to this blog's feed
[What is this?]
Powered by Blogger