Value Investing Is Alive And Well
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In today’s world of “what have you done for me lately?” mentality, investors need to be careful about gravitating to the flashy upstarts of tomorrow over the solid “so last week” stars of yesterday. With much of the profits in the stock market coming from high growth companies, it is easy to start questioning the wisdom behind value investing.
Admittedly, it is not so easy to find quality stocks today using the same criteria that legendary value investor Benjamin Graham used so many years ago. Global competition, constant innovation and obsolescence, as well as a lot more money chasing the market are just a few of the revolutionary changes in the past 85 years. But Graham’s two pronged investment philosophy of preserving capital while earning a satisfactory return is still very much relevant.
In fact, value investors like Warren Buffett continue to find stable operating companies to invest in. Not too long ago, Buffett bought Heinz – a boring old tortoise, not a flash-in-the-pan hare – for $23 billion.
Heinz is the perfect stock for a value investor like Buffett because the downside risk is limited and well known. Both Heinz and its products have been around for over 135 years. Ketchup is found in 97 percent of households and Heinz owns the lion’s share of the market. It’s hard to imagine any type of scenario short of discovering a health issue with the indulgence of tomatoes where ketchup sales might decline let alone grow at a slower pace than that of the world economy.
The upside, aka revenue growth, admittedly is a tad more difficult to predict. Who really knows where sales growth and innovation can come from? Some technological initiatives like the first upside-down squeeze bottle did quite well. Other initiatives like green ketchup, not so much.
Still, smart investors like Buffet know that boring companies such as Heinz Ketchup or Gillette Razors, always find new and interesting ways to reinvent themselves; be it in new products, packaging, or operational efficiency. And while the mighty ketchup engine pulls the company steadily along, “Heinz 57” has a host of products from soups to pickles to vinegar to baked beans.
Value investors should be seeking the same “peace of mind” type stocks as Buffett. But all too often, investors lose their taste for the long term and judgements get clouded.
The classic investment book, Reminiscences of a Stock Operator, writes: “A man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do.” The point here is that investors frequently get caught up in the manic desire for instant gratification and finding the newest and hottest overnight millionaire-maker.
Although performance has slowed from the heady days when double-digit increases were the norm, there still appears to be much life in value investing strategies.
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Source by Jeff Kaminker
