VALUE INVESTING TODAY docx

[...]... intentionally left blank VALUE INVESTING TODAY This page intentionally left blank P 1 A R T What Is Value Investing and Why It Makes Dollars and Sense The goal in Part 1 is to define value investing and establish clearly that the combination of rational fundamental analysis and irrational market prices creates opportunity for value investors As such, Part 1 is designed to address value- investing principles,... differences between value and growth investing CHAPTER 1 WHAT IS VALUE INVESTING ? 5 Before I do that, I want to illustrate the margin of safety concept using two charts In Exhibit 1-1, a horizontal line represents a hypothetical company’s intrinsic value the underlying value of the business Later in this book, I’ll explain how this value is derived For now, understand that a company’s intrinsic value does... recognize the true value of the company, its share price will climb toward its intrinsic value As this happens, the margin of safety shrinks When the share price equals or exceeds the company’s intrinsic value, the margin of safety has disappeared and the shares should be sold EXHIBIT 1-1 The Margin of Safety Concept Intrinsic Value Discount to Intrinsic Value Time 6 WHAT IS VALUE INVESTING AND WHY... adopt and maintain a disciplined approach for evaluating business value They are confident of their research and analysis and patient in implementing their strategy CHAPTER 1 WHAT IS VALUE INVESTING ? VALUE AND GROWTH INVESTING 7 Company-specific fundamental research and analysis enable the value investor to assess intrinsic business value, independent of the volatility of short-term stock price movements... discipline and patience to accumulate substantial wealth The book includes fresh evidence reinforcing the benefits of value investing and draws on my more than 30 years in the investment industry Beyond mere facts and figures, this edition of Value Investing Today explores why the value approach to money management has been successful since first introduced by Benjamin Graham in the 1930s I discuss... below the company’s intrinsic value These price fluctuations create opportunities for value investors When the stock price of the company falls sufficiently below the intrinsic value, it creates a buying opportunity The shaded area between the company’s stock price and its discount to intrinsic value illustrates when value investors should consider purchasing the stock Value investors expect that over... financial oceans without so much as a chart to guide them In Value Investing Today, you will find a way to design and implement a conservative and effective investment philosophy It is a philosophy, I emphasize, that has proved to be a successful means of building wealth and preserving capital WHAT TO EXPECT FROM THIS BOOK This edition of Value Investing Today has been updated with lessons designed to protect... something—whether onions or steaks or stocks—is only relevant as it relates to its underlying value This is the essence of value investing, that is, purchasing shares of a company at a price that is substantially lower than the company’s underlying value 3 Copyright 2004 by Charles H Brandes Click Here for Terms of Use 4 WHAT IS VALUE INVESTING AND WHY IT MAKES DOLLARS AND SENSE Some people believe there is no difference... buy an item for pennies on the dollar That shopper is a value investor The “buying straw hats in winter” analogy neatly captures two hallmarks of value investing: evaluating the true worth of an item (whether a hat or a stock) and purchasing it when it’s out of favor and its price is below its true value As mentioned earlier, the soul of value investing is to buy company shares at a discount The heart... I’ve already addressed regarding value investing in this chapter (its focus on individual company analysis to determine intrinsic value, the margin of safety concept, and its success over the long term), it certainly meets Graham’s definition of investing The distinction between investing and speculation is important for a reason Graham cited in 1949 and remains true today: “ in the easy language . What Is Value Investing and Why It Makes Dollars and Sense 1 1 What Is Value Investing ? 3 2 Behavioral Biases: Why Value Investing Works 17 3 The Value Pedigree and the Rewards of Value Investing.