Value Ideas Blog
Quick Book Review & Quotes: “Art of Value Investing”
The book: ” The Art of Investing – How the wold’s best Investors beat the market” written by John Heins and Whitney Tilson, who also publish the Valueinvestorinsight, is a collection of value investing quotes by more or less famous investors. Overall, the book is well written and easy to read, but the price of the book is around 25 Euro which, in my mind, is quiet expensive for a collection of quotes. According to the authors the best investors can articulate in a clear and focused way what they’re looking for, why they’re looking for it and where they’re trying to find it. They have a well-defined and consistently applied process for research and analysis. Furthermore value investors understand the micro factors, such as a company’s competitive advantages and only act when they are able to draw a conclusion which incorporate a margin of safety. Because I stick with the quote of Richard Pzena, here are the best quotes of the book:   Charlie Munger: “All sensible investing is value investing”   Zeke Ashton: “I’ve heard it said many times that value investing is not as much about doing smart things as it is about not doing dumb things”   Lee Atzil: “The first thing is by making sure the potential downside is a small fraction of the upside. That means we avoid stocks that are cheap on an equity-value basis primarily because there’s a mountain of debt. The second important way to have a margin of safety is to have more than one way to win, through earnings growth multiples expansion or free options in the business.”   Seth Klarman: “People should be highly sceptical of anyone’s including their own, ability to predict the future, and instead pursue strategies that can survive whatever may occur.”   Seth Klarman: “Because investors are not usually penalized for adhering to conventional practices, doing so is the less professionally risky strategy, even though it virtually guarantees against superior performance.”   Howard Marks: “If I had to identify a single key to consistently successful investing, I’d say it’s “cheapness”.”   Seth Klarman: “In a rising market, everyone makes money and a value philosophy is unnecessary. But because there is no certain way to predict what the market will do, one must follow a value philosophy at all times.”   Andrew Pilara: „I realized I should be more of a business analyst than a stock analyst, meaning that to create value as an investor I had to better understand how companies themselves created value.”   David Herro. “I’ve learned from experience that when cheapness blinds you to not-so-hot businesses or poor management, it’s a recipe for disaster.”   Francisco G. Parames: “When you’re younger you just care about getting things that are cheap and making money fast. But as you become old you see that buying companies with high and sustainable returns on capital at reasonable prices tends to work a little bit better.”   Bill Nygren: “A Value investor needs to be able to assess the value of many business characteristics, such as balance sheet strength, cash-generating ability, franchise durability, and so on. Growth is also one of those factors. The ability to grow organically is almost always a positive. It would be a negative only if that growth required so much investment that it had negative present value.”   Julian Roberston: “Something trading at 30x earnings that is growing 25% per year – where I have confidence it will grow at that rate for some time – can be much cheaper than something at 7x earnings growing at 3%. A good analyst is more adept at making judgments on growth.”   Matthew McL. „We like to plant seeds and then watch the trees grow, and our portfolio is often kind of a portrait of inactivity.”   James O’Shaughnessy: “It’s hard for most people to grasp that a great company is not always a great stock, and that a great stock is not always a great company. Value works because you’re consistently paying less to get more.”   James Montier: “Value investors put a different burden of proof on every idea by asking, “Why should I own this?” That degree of scepticism is a valuable trait.”   Seth Klarman: “When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focusing on risk.”   David Herro: “But you can only buy quality cheap when people are afraid.”   Charlie Munger: “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”   Seth Klarman: “It’s okay to do nothing and wait for opportunities to present themselves or to pay off. That’s lonely and contrary a lot of the time, but reminding yourself that that’s what it takes is quite helpful.”   Richard Pzena: „You can learn how to be better at it and the analytical support for it, but you can’t sit there and say, “I’m going to become a value investor.” … I find that the people who are the best this are the type of people who are absolutely thrilled to find a pair of shoes for 20$ that they could have paid 150$ for at a department store.”   Jean-Marie Eveillard: “If you are a value investor, you’re a long-term investor. If you are a long-term investor, you’re not trying to keep up with a benchmark on a short-term basis.”   Brain Bares: “The market gets less efficient as you go down the market-cap spectrum, so running a concentrated portfolio of around 12 stocks in the least-efficient segments would offer the best opportunity to produce above-average returns.”   Murry Stahl: “We’re drawn to companies with long product lifecycles, in which the product or service will be more or less the same five years from now. If that’s not the case, we don’t believe we can with adequate confidence make reliable long-term earnings forecasts.”   James Crichton: “Circle of competence essentially comes down to whether we understand the business. There are several sub-questions und that: Do we know the right people in the industry? How well do we understand the products and the customer decision-making process? Are there unanalysable things that could have big impact?”   Charles de Lardemelle: “We’re far more interested in cyclical companies that are well capitalized, that don’t lose money at the bottom of the cycle, and whose peaks and troughs are both higher over time. We’d be less apt to buy into something like a capital-intensive pulp and paper manufacturer, which bleeds money at the trough and, when they do generate some cash flow, needs to spend much of it on new or upgraded plant and equipment.”   Stephen Yacktman: “The average company has to pour more than half its earnings every year back into the business to maintain itself. If you don’t have to do that – like most consumer products companies – you have more to invest in new businesses.”   Francisco Garacia Parames: „I once heard someone say that every time you double the distance from where you are to where you are investing, you should divide the quality of your assessment in half.”   Bryan Jacoboski: “That’s why the distinguishing attribute among successful investors is temperament rather than brainpower, experience, or classroom training. The have the ability to be rational when others are not.”   Warren Buffett: „Uncertainty actually is the friend of the buyer of long-term values.”   Carlo Cannell: “The edge comes from being able see patterns and reliably diagnosing what they will mean. In identifying potential short sales, for example, seeing decreasing inventory turns for a company audited by a non-Big Six accounting firm is an interesting correlation.”   Steve Morrow: “If you find a stock that you think is undervalued but you’re unable to identify how your insights into the company differ from those the market is using price the stock, it’s probably not really undervalued.”       Have a good week!

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