Graham and Dodd

They’re the 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 follows kind 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, and the company should double in value (all else being equal) about every 7 years or so.

Very nice investment returns for value investors.