Philosophy of Value Investing

Value investing defined by Benjamin Graham. He had written two great books as Security Analysis and intelligent Investor.

Benjamin Graham (May 8, 1894 – September 21, 1976) was an influential economist and professional investor. Graham is considered the first proponent of Value Investing. Well known disciples (students and teaching assistants) of Graham include Warren Buffett, William J. Ruane, Irving Kahn, Walter J. Schloss, and Charles Brandes. Buffett, who credits Graham as grounding him with a sound intellectual investment framework, described him as the second most influential person in his life after his own father. In fact, Graham had such an overwhelming influence on his students that two of them, Buffett and Kahn, named their sons, Howard Graham Buffett and Thomas Graham Kahn, after him. By Wikipedia

1. Value Investors don't believe efficiency Market hypothesis (EMH)

2. Efficiency Market Hypothesis means that as anything that may affect prices that is unknowable in the present and thus appears randomly in the future

3. Value Investors don't predicated any stock price

4. They are looking for a good performance company based on past performance and current information

5. They always evaluate company financial report to find a good company.

6. They find a stock value not a stock price

7. They don't need watch stock price day by day.

8. They find a Intrinsic value of a company.

Intrinsic value means that the present value of cash that an assets generated from the business

9. They find under value of a stocks

10. They evaluate company's balance sheet, Income statements and cash flow statement, looking for signs of hidden value.

11. They like a stocks with a low Price to Earning Ratio.

12. In fact, value investors need spend a more time to evaluate a stock to find a intrinsic value or fair value

13. And they need a stock price sufficient margin of safely. They find a underground stock price

14. They hold a good stocks or company over a long period until some good conditions changed.

Mr. Market Theory

Using his famous Mr. Market parable, Graham suggests the attitude one should adopt toward fluctuations in prices.

Graham's favourite allegory is that of Mr. Market, an obliging fellow who turns up every day at the shareholder's door offering to buy or sell his shares at a different price. Often, the price quoted by Mr. Market seems plausible, but sometimes it is ridiculous. The investor is free to either agree with his quoted price and trade with him, or to ignore him completely. Mr. Market doesn't mind this, and will be back the following day to quote another price. The point is that the investor should not regard the whims of Mr. Market as determining the value of the shares that the investor owns. He should profit from market folly rather than participate in it. The investor is advised to concentrate on the real life performance of his companies and receiving dividends, rather than be too concerned with Mr. Market's often irrational behaviour.

Reference Book

The New Buffettology: The Proven Techniques for Investing Successfully in Changing Markets

That Have Made Warren Buffett the World's Most Famous Investor.. Published in 1997, the bestselling Buffettology was written specifically for investors in the midst of a long bull market. Since then we've seen the internet bubble burst, the collapse of Enron, and investors scrambling to move their assets - what remains of them - back to the safety of traditional blue chip companies. As price peaks turned into troughs, worried investors wondered if there was any constant in today's volatile market. The answer is yes: Warren Buffett's value investing strategies make money.

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