There is no reason why investing should be a gamble. Studying historical picks from the greatest investors in the world is a strategy both novice and advanced investors can use to make investing more into a science than a gamble.
By examining past holdings of investment greats like Jean-Marie Eveillard (Trades, Portfolio), we find important concepts that made value investors like Eveillard great.
Today, we examine Ball Corporation (BLL, Financial), a 5-Star Business Predictability ranked company. Tracing its roots to the Mason Jar, Ball Corp has been a provider of goods essential to society for 134 years. If civilization did not have food storage, most of us would not be here today. This product necessity provides a durability of demand that makes investors less nervous about the risk they take in buying common stock, some may call this a moat.
The chart below is the holding history of Eveillard’s Ball Corporation. The green bars represent the number of shares held in Eveillard’s portfolio at quarter end. Notice the substantial amount of shares held in 2009 and now it is zero. The dotted line represents the price of Ball Corporation. A value investor enters Ball Corporation when it is calculated to be undervalued compared to alternatives, and exits when estimated to be overvalued.
The reason why we should study the great investors is simple. The chart below shows the gains on Eveillard’s holding from the end of each quarter to today. It is clear, seeing the right most column in green, holding BLL from 2009 to today was very profitable. By examining these past successes we can learn the important concepts and apply them to our own investing.
Using GuruFocus’s Interactive Charts feature, we can see complicated financial data plotted on an easy-to-understand chart. This levels the playing field for visual learners that have been at a disadvantage trying to comprehend numbers using Excel. Below is a chart of the Price to Sales ratio.
The Price to Sales ratio, or P/S ratio for short, is one concept successful value investors find useful. Of course there are exceptions, but the basic concept is it shows how much the market is willing to pay for $1.00 of Ball Corporation revenue. Value investors, like Eveillard, wait to capture revenue at discount prices. As one can see in the chart, 2001 and 2009 were when revenue was priced at a bargain. Judging by the returns above, those investors made a very profitable decision.
The other concept that some value investors find important is assets. It is important to understand when we purchase stock, we are buying assets. The theme park Six Flags has real estate and roller coaster rides as assets. Retail companies like Walmart have real estate and inventory as assets. Value investors must understand when we buy Ball Corporation stock, we are buying real assets.
Below is a chart showing the Property Plant and Equipment owned by Ball Corp in green. This is the actual value of the crown jewels that produce goods society needs. The blue line represents the price the stock market is valuing those PP&E crown jewels. Back in 1996 and 2000, value investors buying Ball Corporation stock were able to capture their PP&E for less than the stated value. Buying an asset at a discount creates what value investors consider a "margin of safety."
This concept of buying assets for less than their true value is what makes value investors successful. Studying revenue and assets is something we can and should do to make investing less a gamble.
Using Gurufocus Interactive Charts now makes our job much easier.
