Value investing

 Just a short post about investing.

I personally like Walter Scholls summation on value investing. He says " I don't think i would like to buy good companies at bad prices, i want good companies at a discount. I'm looking to make a profit and i don't want to lose money. At times, people get nervous and you can buy a good comapny at a fair price. I can't generalize because each company is different but if you want to make a profit with a stock that may go up, say, 50% which may take several years, you'll just have to be patient. But i don't want to lose money. To do that, you usually want to buy stocks that are having problems. Quite often, the stock market acts emotionally, people act emotionally. Bad news, causes trouble. What you try to do is not get  involved with the emotions of buying and selling. "

I watched an interview with Sir John Templeton, where the interviewer asked "What is your advice to people in terms of the stock market today". Unfortunately, i can't seem to find a date of this interview (im guessing between 1960-80), but the message is still valid.

Sir John Templeton replied "Patience. Be a long term investor. Be prepared financially and psychologically to live through a series of bull markets and bear markets, because in the long run common stocks will  pay off enormously. The next bull market will carry prices far higher than this one."

The interviewer sharply contested "Why?"

Sir John Templeton: "Because the whole nation is growing more rapidly. Gross National Product (GNP) of the nation will double in at least the next ten years. we think that the GNP of the nation in 40 years will be 64 times what it is now and that will be reflected in sales volume and profits and share prices. So, from a long term investment standpoint, It's a question of when you should put your money into stocks. We can't give you the exact day, but some time the bull market will start again and you want to be in on it."

It just came to my attention whilst writing that last line that the interview was probably during the 1960-80s as the US market had a severe bear market during those times.



Personally, i agree with Templeton. Picking the highs and lows of the market isn't done with consistency. Having said this, i like companies that have stood the test of time and continue to produce more and more earnings. By earning more and more, the company has the ability (if necessary) to continue increasing dividends. By being a long term investor, and hanging on and adding to your long position's when stock prices fluctuate for reasons unrelated to business fundamentals, you can seriously increase your returns. It wouldnt surprise me if Buffetts dividend yield from his Coca-Cola stock holdings was in the range of 15-25% p.a. This goes to say without capital appreciation on top. However, this doesn't apply to Buffett, as he doesn't seek capital appreciation. Rather, he likes to own fractional ownership (if he's not buying the entire company) in businesses that can continue to grow its earnings. Bruce Greenwald, I think said it best "You are looking for things that are ugly, cheap, boring, out of fashion, small and obscure, or otherwise, if it's on the other side of the existing financing mania".

Excuse the poor formatting, my stylistic English isn't the best.