I was interviewed recently by Larry McDonald from the Globe & Mail. It was published yesterday and you can read the article here:
If I could make one tiny clarification. It says,"Mr. Graham is now an adherent to “deep value investing,” which involves looking for stocks trading close to, or below, their “intrinsic value.” "
I actually look for stocks trading substantially below their "intrinsic value", preferably 50% or more. This provides a margin of safety. If I am wrong about part of the analysis or the future doesn't turn out quite as I expected, the result should still be satisfactory. Preventing a permanent loss of capital is paramount.
If I could make one other comment regarding value investing. It seems that today everyone wants to be a value investor. I mean, who wouldn't? Warren Buffett has made it an investing catch phrase and his success is what everyone tries to emulate. The problem is this, who is going to publicly state their investment is fair or overvalued? Nobody. Everyone want capital appreciation. Thus, every investment is justified as a "value investment" to somebody.
So buyer beware. Next time someone tells you that a stock is cheap take it with a grain of salt. When I started blogging I read an article that Petrobank & PetroBakken were "excellent risk/reward scenarios". The problem was the article was big on future hype and very lacking in facts and figures. When I subsequently did my research, I came to quite the opposite conclusion. In fact I said it was a, "terrible risk reward scenario." To read the article and back and forth Click Here. You see the other fellow was going off of an analyst's report which is very dangerous. Petrobank and Petrobakken are down around 75-80% since our debate around a year ago.
The other problem with valuing a stock is that you have to make predictions about the future. These are never going to be accurate. This is why a margin of safety is required. If you look back over history Buffett prefers to minimize this risk by buying companies that have predictable operations. This allows an analyst to much more accurate predictions about the company. Buffett also sticks to companies that are NOT effected by technological change and produce products that we have consumed for the past 100 years and will consume 100 years from now. He has often said that change is the enemy of the investment analyst. Examples would be razors (Gilette/P&G), ice cream (Dairy Queen), machine tools (ISCAR), insurance (Geico), paint (Benjamin Moore), Bricks, (Acme Brick), and Candy (See's Candy/Kraft) to name a few.
So remember, always buy at a large discount to intrinsic value.
Disclosure - Long BRK.b, JNJ, KFT (Personally or For Family)