Factor Strategy Focus – Benjamin Graham

By Jack Forehand — When we started following guru-based models, the term factor investing didn’t exist. We just wanted to find a way to outperform the market, and we realized that only a very small group of investors had successfully done that – and we certainly weren’t in that group. So we decided to follow investors who had long-term records of beating the market and whose strategies could be quantified. We read their books and research papers to try to find out how they did it. We researched strategies by legendary investors like Warren Buffett, Ben Graham, and Peter Lynch, […]

Piotroski and Book/Market-Based Investing

 In a recent article for Nasdaq, Validea CEO John Reese shares insights on quantitative investing and outlines the approach of Stanford University accounting professor Joesph Piotroski (a market guru that inspired one of the stock screening models Reese created for Validea). Piotroski, writes Reese, was a trailblazer in the investment approach, turning heads on Wall Street in 2000 with his research on unpopular companies with high book-market ratios (defined as total assets minus total liabilities divided by market capitalization). Reese offers an explanation of Piotroski’s approach and the metrics he used, as well as an overview of the Validea portfolio […]

Columbia’s Bruce Greenwald on Value Investing

When Columbia professor Bruce Greenwald first arrived at the university, value investing wasn’t terribly popular, but he was convinced it was a much better approach. This according to a recent interview with Barron’s. Here are some highlights from the interview: “Specialization is an old and honorable Graham and Dodd tradition.” Greenwald references successful value investor Mario Gabelli, arguing how his specialties have served him well. “When you start out,” he says, “you want to have an industry focus.” He says this is the advice he gives his students. Value investing is about more than buying cheap stocks, according to Greenwald. “People […]

Francis Chou is a Patient Investor

Regarded as one of the savviest value investors in the world, says a recent article in Canadian Business, Francis Chou thinks the market is overpriced right now, but will come down–and he’s willing to wait. The article notes Chou’s early career as a Bell telephone technician (1979) during which time he became fascinated by the idea of value investing. Since then, the article says, Chou claims he’s been “doubling his money about every five and a half years.” A year after obtaining his CFA certification in 1985, he launched Chou Associates Management. In 2015, Barron’s named Chou one of the […]

Why Value Investors Need “Mental Toughness”  

At the end of the Super Bowl, a jubilant Tom Brady attributed the Patriot’s win to the “mental toughness” the team had demonstrated all year–which, no doubt, came in handy when they entered the fourth quarter trailing the Falcons by ten points. Unless we’re talking about basis points, things would be pretty dismal for any investor entering the fourth quarter down by ten. But the idea of mental toughness applies to investing as well as to football, whether it be for a day, month, quarter or, for that matter, a year. Value investing is a perfect example of this. We […]

Greenblatt on Gotham’s New Fund

Guru investor Joel Greenblatt—Columbia University professor and co-founder of Gotham Asset Management–has consistently made a strong case for value investing and created a series of hedge funds and mutual funds that would go long cheap stocks and short expensive stocks. However, in a recent interview with Barron’s, Greenblatt explains how underperformance and investor frustration led his firm to launch an index fund (Gotham Index Plus), which has been outperforming the S&P 500. The reason? Investors don’t adhere to investment styles that underperform. “While value investing works over the long term, and in the vast majority of cases within two or […]

Is Value Investing Getting Short-Changed?

A report published last month by investment management firm Research Affiliates, LLC addresses the question of why value investing (a smart-beta strategy using value indicators such as CAPE or price-earnings ratios) has “fallen out of favor in institutional portfolios,” according to an article in Chief Investment Officer. The authors of the report argue that value investing is increasingly overlooked and that the “average” portfolio’s stock and bond holdings are comprised of 60% buy-and-hold in the S&P 500 and only 20% of value-based securities. The team compared the performance of the two components over a 53-year period and found that the […]

Investing Principles Part IV: Buying Stocks That Have Declined in Price

As our discussion of the Tweedy Browne publication What Has Worked In Investing continues, we’re going to look at the strategy of investing in poorly performing stocks both domestically and globally. The concept of value investing lives at the core of our stock screening strategies inspired by gurus Benjamin Graham, David Dreman, John Neff and Warren Buffett (who subscribes to the notion that “Price is what you pay; value is what you get.”). Each of these legends has earned fortunes by investing in companies whose stocks were selling on the cheap relative to the underlying values of their businesses. Such […]

John Neff: Bargain Hunter

Unloved but promising stocks were just the ticket for Investment guru John Neff. While managing the Windsor Fund for more than 30 years, his conservative approach earned an average 13.7% annual return and beat the market by an average of 3.1% per year. In his article for TheStreet.com this week,  Validea CEO John Reese describes this Low P/E Investor’s philosophy and offers some fundamentally solid stock picks. Scripps Networks Interactive, Inc. (SNI) is a developer of lifestyle-oriented content for linear and interactive video platforms including television and internet brands. Our Neff-based strategy likes the company’s EPS growth of 9.7%, which […]

Oakmark’s Bill Nygren Talks Value

“Value is relative to something else,” says Bill Nygren when asked where to find it in today’s market. Manager of the Oakmark Select Fund since 1996, Nygren offers his perspective in a recent interview with Investment News. “In a period when you have short-term investments such as Treasuries with zero risk that pay zero, an average-risk equity that’s paying more than 2% a year in dividends and growing earnings 5% to 6% a year…. that’s a pretty attractive holding.” As far as where to find it, Nygren identifies the banking sector as “unusually attractive.” Banks, he says, are selling for […]

Chuck Royce – 4 Decade Small Cap Manager Talks Value’s Ultimate Rebound and the Downside of Indexing

Chuck Royce, small cap stock picker and pioneer, recently sat down with Consuelo Mack of WealthTrack to discuss his thoughts on the recent slump of value vs. growth stocks as well as his firm’s process for sourcing new investment ideas. Royce, who has been in the investment management business since 1972, explains that small cap stocks can offer outsized long term returns, potentially with less volatility (assuming you are investing in value stocks) compared to other asset classes. Royce points out that value stocks have significantly underperformed growth stocks since early 2009. He theorizes this is largely due to firms […]

Charles Brandes Gives Tips for Savvy Value Investing

Charles Brandes, founder and Chairman of Brandes Investment Partners, is a disciple of the Benjamin Graham school of value investing. He has made much of his wealth managing funds that invest in cheap, beaten-down stocks that no one else wants. In a recent interview with CNBC, Brandes offered some tips for making money in value stocks: Search for value. Brandes says a company should have sustained no losses over the past five years and total debt should be less than 10 percent of total tangible equity. Further, share price should be less than the book value per share, and any […]

Top Value Investor Chris Davis on the Value in Financials

Chris Davis, chairman of the value investing shop, Davis Advisors, and portfolio manager of multiple Davis funds including the Davis Financial Fund, talks about a wide range of investing topics with WealthTrack’s Consuelo Mack.  One of the key points he makes early in the interview is that financial firms with the right culture and the right business can be “compounding machines” over many years or decades. Many financials are growth stocks disguised as a value stocks, says Davis. Davis explains there is a secular opportunity in financials, because of their long term growth prospects, but a cyclical opportunity exists as […]

IVA’s Charles de Vaulx on Global Economy, Markets, and Value Investing

Barron’s recently reprinted the transcript of value investor Charles de Vaulx’s recent conference call with financial advisors. De Vaulx is chief investment officer of International Value Advisers (IVA). The call focused on recent market and economic changes, the firm’s performance (including its Worldwide and International portfolios), why IVA is holding cash, and why it has added to its gold holdings.  De Vaulx maintained that “value investing – if executed properly – is more relevant than ever” because of forces such as widening credit spreads and the realization that “liquidity is very poor in many high-yield and distressed situations.”  He observed […]

Value Manager Tim Hartch Focuses on High Quality Businesses

Advisor Perspectives highlights the record of value investor Tim Hartch, co-manager of several Brown Brothers Harriman & Co. funds. In the published interview, Hartch explains that his BBH Core Select fund’s “buy-and-own approach, [which] focus[es] on high-quality businesses that are trading at a discount to proprietary intrinsic value estimates.” The goal is “to achieve attractive returns that protect capital in down markets and outperform on a relative basis over time,” noting that “we have historically outperformed in most down markets, such as the 2008 time period, while participating in up markets.” He said, “our focus is on identifying high-quality businesses” […]