Graham and Dodd are old geezers who literally wrote the book on value investing.
Value. That is, companies where the dollar invested today can be easily mathematically mapped out, such that the company returns well more than a dollar in a very short time period.
Think: generally low price-to-earnings ratios; high dividends; modest growth; highly predictable growth on investment at current prices.
A key distinction of the Graham and Dodd system was to ‘buy low and sell when fairly priced,' not when high. And this is the opposite of a momentum or go-go investor, who believes in more of a "buy high sell higher" pattern. The core idea that comprises investing logic is that, if you invest a dollar today, you expect to get more than a dollar back tomorrow.
Or next year.
Or next decade.
So if a company has no debt and a dollar of cash, and will earn a dollar this year, a dollar-ten next year, a dollar-twenty the next, and just plans to keep its cash, or buy back stock with it, and that company can be bought for 10 bucks a share, then it is a value stock in today's world.
The equity value of the company is 9 bucks a share after subtracting that dollar of cash, and with earnings growing slowly and steadily, life is grand with very low downside risk. The company should double in value, all else being equal, about every seven years or so.
Very nice investment returns for value investors.
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Finance: What is a value investor?1 Views
Finance allah shmoop what is a value investor Well of
value investors and investor who buy stocks that she believes
have quote hidden unquote value That little wall street just
isn't appreciating So uh aren't all investors value investors Well
kind of yes And really no value investor Generally speaking
in this context waits until a stock with good core
assets stumbles The company falls on short term hard times
and maybe quote should unquote traded twenty bucks a share
But wall street was angry and disappointed and hurt that
the company grew revenues only seven percent instead of the
expected fifteen percent for a quarter to and the streets
sold down the stock from eighteen to seven Well the
proverbial baby is thrown out with the bathwater And well
at this point the value investor steps in and buys
the stock big They hold the stock it's a tte
seven box The company slowly fixes itself in the stock
price gradually creeps upward back to that eighteen figure And
then the value investor likely sells the stock when it
goes from cheap to being fairly priced like you know
back in that eighteen twenty dollars target price kind of
thing Yeah that's where it was supposed to be earlier
all else being equal Well the normal cycle would then
have the value investors sell those shares to a growth
or mo mentum investor Who's credo is more like buy
high sell higher versus the you know value investor who's
all about by low then sell when fairly price that's
like benji graham Look him up it's not a sexy
but you can make big bank in value Land just
asked that one billionaire who loves all you can eat 00:01:40.498 --> [endTime] restaurants Yeah what's his name again
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