There seems to be a strange dichotomy in the value investing universe: those who buy so-called compounders, and those who buy so-called cheap stocks. I want to own businesses that are building value, but that doesn’t mean I don’t care about valuation. I pass on probably 99% of the ideas I look at, many of which are great businesses, simply because the current price won’t allow my investment in the stock to compound at the rate of return that I’m looking for over time.
However, I think there is far too much “compartmentalization” going on in the value investing world. I should say – I too tend to compartmentalize on occasion. And Buffett compartmentalized when he ran his partnership. (By this, I mean that investors tend to put stocks into categories such as compounders, cheap assets, net-nets, arbitrage, special situations, etc…) Continue Reading »