What is Value Investing?
We’re value investors here at Intelligent Investor. Simply put this means that we buy stocks that we think are priced below our estimate of their value.
Separating price from value allows us to find businesses that are undervalued by the market, with a margin of safety to account for business specific risks. We aren’t afraid of complexity and digging deeper to get a research edge.
To ensure we are genuinely independent and contrarian, we don’t follow the market and the crowd. We don’t follow the index and are happy to ignore sectors if need be. A cheap stock is a cheap stock and its place in our portfolio is earned by value, not by sector.
We are happy to hold cash where there are no good opportunities – we don’t invest for the sake of being invested.
Similarly, we ignore the situations that are “hot” or “on trend” or have nice narratives – undervalued businesses are found where no one else is looking. Rather than trying to predict the future, we look at individual businesses and try to buy them for less than they are worth. We find that stocks that are a little unloved and ignored can provide the best value. A little ugliness or complexity is might be misunderstood by others or scare people off, but at Intelligent Investor we realise the opportunities that come with putting in the extra research and time.
We aim to find stocks that are undervalued in respect to their ability generate cash over the long term. We aim to hold a portfolio of good quality businesses mispriced by the market. They don’t have to have low PERs but they do have to be trading for less than they are worth.
The market is short term orientated and we can bring an edge when we are genuinely long term. We manage position sizes and identify correlated risks to maximise total portfolio return and minimise risk. We also take precautions such as having a flat investment team structure and a stringent peer review process so as not to risk strong personalities overriding investment decisions.
We are flexible about the approaches we use to find value, but typically it will involve taking advantage of the market’s short-term horizon: either buying a stock whose long-term prospects aren’t as bad as a gloomy consensus; or buying a stock where the prospects are even better than a rosy consensus.