Ari Weinberg

Lessons from the Value Set

Originally published at FiLife.

Growth investors favor fast-growing, young companies which tend to be light on dividends and heavy on moon-shot products or disruptive technologies.

Value investors, introspective geeks of the investing world, are bargain hunters. They like to buy out-of-favor companies with consistent earnings.

Last week, value investors took center stage at the Value Investing Congress in New York. These are the disciples of famed investor and professor Benjamin Graham. His book, Security Analysis, is The Bible for the value set. It preaches that the best investing is done through solid research and understanding of company operations, not fly-by-night whims or momentum.

Current practitioners of Graham’s theory include Berkshire Hathaway CEO Warren Buffet and mutual fund managers Bill Miller and Mason Hawkins.

I spent a few days at the Congress to glean some value tips for the everyday investor. Here are my observations:

1. Have a World View: Though each manager at the conference came to present one or more individual investing ideas, most of the presenters prefaced their stock pick with a clearly delineated macro-economic thesis.

David Einhorn of Greenlight Capital, famous for recommending a short of Lehman Brothers in 2007, built his case for holding actual physical gold, given his worries about the safety of the banking system and concerns about inflation. Whitney Tilson of T2 Partners presented extensive research on continued trouble for the housing industry.

For most of us, without the time to drill down on individual stocks (remember, it’s their JOB), a world view – right or wrong – can offer a sound rationale for the manner in which we invest.

2. Be a Skeptic: No longer an active hedge fund manager, legendary investor Julian Robertson told the audience to temper their confidence.

“There’s always something that could come along and swat you over the head,” he told the crowd. Also, parting with some in the value crowd, Robertson says he sees value in strong, lasting franchises, even in technology. He cited Intel and Google as examples.

Eventually growth stocks, if they generate enough cash, can excite the value set.

3. Be Principled: Investing on a whim is a sure way to financial ruin. Kian Ghazi of Hawkshaw Capital says he approaches each investment with this question: What would cause a 30% decline in price and have us NOT want to buy more?

This perspective could have helped a lot of us when the markets were in the depths of March. What caused you to run for the doors? Was there a fundamental flaw in your risk tolerance? Was the world actually ending?

4. Have Discipline: As we’ve mentioned at FiLife several times, do not fall in love with your money or investments. Alexander Roepers of Atlantic Investment Management said his firm has clear “buy/sell” discipline.

He mentions this tactic both in terms of how his firm makes an investment – scaling in over time – as well as getting out at a set level.

For everyday investors, this discipline comes in having a plan and rebalancing/reallocating when assets shift. If you are set to own 75% stocks, if you get to 85% because of market improvements, take your gains and go back down.