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Book Review - 'The Value Investors: Lessons from the World's Top Fund Managers'
Posted by: Mark Lin (IP Logged)
Date: November 2, 2012 02:56PM
The Author of the book, Ronald W. Chan, is the founder of Chartwell Capital Limited, an investment company based in Hong Kong. He is also the author of "Behind the Berkshire Hathaway Curtains: Lessons from Warren Buffett's Top Business Leaders."
Ronald's new book "The Value Investors: Lessons from the World's Top Fund Managers" (ISBN 978-1118339299) is a collection of interviews with some of the world's leading value investors, including those from Europe and Asia. This book also possibly contains Walter Schloss' last published interview before his death.
As the book reads a lot like the short biographies of the leading value investors, I will attempt to extract some of the value investing philosophies, strategies and tactics from the book and summarize them below:
- Found secondary companies that did not appeal to the general public and had big book values but not necessarily good earnings. The most important thing was that the companies were cheap enough and provided a margin of safety.
- He also stressed the importance of diversification to reduce risk. The contrarian approach worked.
- He searched for stocks that were trading at new lows and never focused too much on market news and economic data. He was not good at market timing, but concentrated on price and value of a stock
- If he liked a stock in the first place, he liked it more if it went down. It often took patience to wait for a cheap stock to gradually reflect its true worth over time; Schloss' average holding period was about four to five years.
- Many people are trying to be like Warren Buffett, but Schloss said he knew his limitations and would rather invest in the way he is most comfortable.
- He generated investment ideas by absorbing numerous types of information (including science, psychology and history, etc.) and combining them to generate a broad perspective on the future.
- He had the patience to wait for undervalued stocks to be recognized and return to true intrinsic values.
- He believed people needed the discipline to do their own hard work in making investment decisions instead of relying on others.
- He had the skepticism to look beyond numbers.
- He looks into quality of a business and its assets, such as evaluating the true value of undepriced assets such as land, IP and brands.
- Absolute value managers determine valuation of a stock based on appropriate adjusted book value or conservative multiple of more normalized earnings.
- Searches for fallen angels and turnaround catalysts.
- Screens for investment opportunities by checking out daily stocks losers and 52-week lows.
- Learned from the business valuation model of LBO investors to incorporate companies' corporate structure, business nature, intangible assets into valuation.
- Believed if you buy a good and sustainable business, over time the return of that business will do the natural compounding for you.
- Diversification is a way of safeguarding against adverse movements in any particular investment holding and allows us to be less obsessive with our holdings.
- Uses EV/EBIT instead of FCF.
- Never believed in a concentrated investment portfolio.
- Has an investment horizon of at least five years and never minded buyng a stock on the way down.
- Has the courage to say no in times of market frenzy..
- Most of the value investors interviewed run a fairly diversified portfolio - the most concentrated of them has 30 stocks.
- They all focused on intrinsic valuation, although methods varied.
- Read for ideas!
- Some of them have a macroeconomic overlay despite a bottom-up investing approach.
- Reasonable investment horizon of three to give years
- The right temperament matters!
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