Value investing
Hedge fund manager Seth Klarman has described value investing as rooted in a rejection of the efficient-market hypothesis (EMH).
This niche allowed Tweedy to buy stocks at a significant discount to estimated book value due to the limited options for sellers.
While managing the endowment of King's College, Cambridge starting in the 1920s, Keynes first attempted a stock trading strategy based on market timing.
In 2017, Joel Tillinghast of Fidelity Investments wrote: Keynes used similar terms and concepts as Graham and Dodd (e.g. an emphasis on the intrinsic value of equities).
Keynes did not teach his concepts in classes or seminars, unlike Graham and Dodd, and details of his investing theories became widely known only decades after his death in 1946.
The concept was introduced in the book Security Analysis which he co-authored with David Dodd in 1934 and calls for an approach to investing that is focused on purchasing equities at prices less than their intrinsic values.
Sometimes, the production power of an asset can be significantly reduced due to competitive disruptive innovation and therefore its value can suffer permanent impairment.
[14] In an interview,[15] Benjamin Graham admitted that even by that time ad-hoc detailed financial analysis of single stocks was unlikely to produce good risk-adjusted returns.
Instead, he advocated a rules-based approach focused on constructing a coherent portfolio based on a relatively limited set of objective fundamental financial factors.
Many modern practitioners employ more sophisticated forms of quantitative analysis and evaluate numerous financial metrics, as opposed to just two as in the "magic formula".
In this speech, Buffett examined the performance of those investors who worked at Graham-Newman Corporation and were influenced by Benjamin Graham.
Aside from Buffett, many of Graham's other students, such as William J. Ruane, Irving Kahn, Walter Schloss, and Charles Brandes went on to become successful investors in their own right.
[31] Graham's most famous student, however, is Warren Buffett, who ran successful investing partnerships before closing them in 1969 to focus on running Berkshire Hathaway.
In essence, he updated the teachings of Graham to fit a style of investing that prioritizes fundamentally good businesses over those that are deemed cheap by statistical measures.
Burry is famous for being the first investor to recognize and profit from the impending subprime mortgage crisis, as portrayed by Christian Bale in the movie The Big Short.
Burry has said on multiple occasions that his investment style is built upon Benjamin Graham and David Dodd’s 1934 book Security Analysis: "All my stock picking is 100% based on the concept of a margin of safety.
"[33] Columbia Business School has played a significant role in shaping the principles of the Value Investor, with professors and students making their mark on history and on each other.
Twenty years after Ben Graham, Roger Murray arrived and taught value investing to a young student named Mario Gabelli.
Mutual Series has a well-known reputation of producing top value managers and analysts in this modern era.
Whitman believes it is ill-advised for investors to pay much attention to the trend of macro-factors (like employment, movement of interest rate, GDP, etc.)
Whitman's letters to shareholders of his Third Avenue Value Fund (TAVF) are considered valuable resources "for investors to pirate good ideas" by Joel Greenblatt in his book on special-situation investment You Can Be a Stock Market Genius.
For a time, these two were paired up at the First Eagle Funds, compiling an enviable track record of risk-adjusted outperformance.
The point made is that margin should be considered the anathema of value investing, since a negative price move could prematurely force a sale.
Other notable value investors include: Mason Hawkins, Thomas Forester, Whitney Tilson,[38] Mohnish Pabrai, Li Lu, Guy Spier[39] and Tom Gayner who manages the investment portfolio of Markel Insurance.
[42] Furthermore, Foye and Mramor (2016) find that country-specific factors have a strong influence on measures of value (such as the book-to-market ratio).
In 2000, Stanford accounting professor Joseph Piotroski developed the F-score, which discriminates higher potential members within a class of value candidates.
The American Association of Individual Investors examined 56 screening methods in a retrospective analysis of the financial crisis of 2008, and found that only F-score produced positive results.
Unfortunately, the term still exists, and therefore the quest for a distinct "value investing" strategy leads to over-simplification, both in practice and in theory.
These "dividend investors" tend to hit older companies with huge payrolls that are already highly indebted and behind technologically, and can least afford to deteriorate further.
By consistently voting for increased debt, dividends, etc., these naive "value investors" (and the type of management they tend to appoint) serve to slow innovation, and to prevent the majority of the population from working at healthy businesses.
