Why a value investing focus?

Quite simply, because it works.

But here’s a quick background :
Everyone’s heard about Warren Buffett – the most successful investor of our time. Anyone who reads about Buffett, and how he got to be who he is will learn about his approach to investing, and who he learned from etc. It is a fascinating story, but the bottom-line is that his teachers wrote some very influential & incisive books, and Buffett’s own letters and actions through his career have created a large body of work on sound investment principles.

Buffett’s partner, the legendary Charlie Munger, has also shared many insightful takeaways from his decades of successful investing alongside Buffett.

Innumerable successful investors over the last 50-70 years have followed something from this broad “value investing” approach & done very well for themselves. By “well” I mean better than 99% of fancy “hedge funds”, and way better than most asset management firms through these last few decades. There is now a ton of literature from many “investment greats”, dead & alive – and most of it is highly correlated with, or draws from the learnings of Buffett, Munger, Lynch, Klarman & several others who share many common principles about how businesses can be thought of, studied and valued – conservatively. For more, here’s a decent introductory article on the subject.

There are many approaches to value investing – from deep value (Graham-style) to moat investing, to permutations and combinations of these arrived at by an investment manager.

India is not yet a developed market, and as such, the fund managers I’ve profiled don’t have a rigid framework in their discovery of value – in other words, there is in practice, a great deal of flexibility in their approach. What is common with this group is that they have read Buffett, Munger, Fisher & a spectrum of authors from the shelf of value investing greats – and have adapted their styles based on all those learnings.

To emphasize, there are many “stock pickers” who run mutual funds & PMS schemes who do not have such a background, and some may have even done well. For me, having read all that I have about investing, and value investing in particular, I would much rather find managers whom I can find common ground with on at least a few levels. Value investing is to me, an elementary ‘first-level’ filter.

Further Reading

See legendary investor Li Lu’s talk “The Prospects for Value Investing” (from Oct 2015), pages 15 -23, where he addresses the question :

“is there a reliable way to invest across different periods of time which can produce a superior return to the index while still protecting client assets? Which can allow clients to achieve a long term, reliable and exceptional return by participating in that process of economic compounding?

Is there a way to invest – nothing heterodox – which can be repeated and studied, and which can bring us this kind of result over the long term?

In the last few decades, as far as I know, there has been every kind of investment style. And as far as I can observe and speak to with statistics, there has only been one style which has reliably and safely brought investors exceptional long term returns: value investing. I realised that there are scant few long term track records to use to illustrate this, and that of those I could find, practically all were value investors.”

[Lu has the rare distinction of being considered by Buffett & Munger as a potential successor to manage Berkshire’s investment portfolio. Munger (even as of Feb 2017) has only 3 primary investments – Berkshire, Costco, and an investment in Lu’s fund, Himalaya Capital]

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