what is value? value is durability, something that sustains over period of time. Value investing is just about of searching for such durability.
let me use a metaphor, why do we buy iphone, oneplus and Samsung at high price vs mi, oppo, gionee? or why do we buy branded products on amazon, it is because of durability aka value
many equate value investing with owners of cheap stocks, but that not true. value investing is defined as low price to book and low price to earning by morons. every bankrupt business will have a low price to book and price to earning just before it declares bankruptcy. does it mean value investor will be buying these stupid businesses?
On behalf of value investors let me write what value investors look for.
value investors genuinely wish to benefit from acquiring a sustainable business at cheaper price, cheap price -> often caused by shorter term asset managers.
(short term asset managers= to gather assets, most fund managers chase short term performance. if I had a limited experience, I would invest in funds showing QUICK return, so its natural why PMS , MF chase short term performance to attract amateur investors)
the amount of time spent by value investors to find strength & sustainability of a business is much more than short term speculators. Companies like glass lined reactors or graphite electrodes or dyes do not have sustainable profit stream, these are obvious avoid for a value investor. also, companies with government incentives/regulations are an avoid as they do not guarantee sustainable profit stream. Such hard filters help value investor to reduce losers if he were to buy and hold them for LONG time. value comes from sustainability of a profit stream.
Say api pharma in current environment with great pricing from shortage. All api companies are rising as if they are moated and resilient to price erosion. api might have been good buys at a price where they were expected to earn modest profit for long period of time. today api are priced for VERY high profitability, an avoid. pharma companies that spend millions in research and complex manufacturing may earn high profits for a sustained period will be sought after by a value investor, but api not so much.
Ignoring what warren buffett says for his own marketing, focus on his analysis on sustainability of profits in companies. He would never buy a tech company, unless consumer oriented ones that promise sustainability, as tech faces easy duplication or superior product offering from new companies.
its fancy to mock other process assigning it a reason when that style is out of favour, i do it too. If iphone 12 fails, we will say that loss of steve jobs cost apple dearly while ignoring that Apple is 6 times bigger today since steve jobs’ death. during 1975-1995 people in US called quality companies are an avoid as they are fully priced most of the time, peter lynch recommended selling them at every 20% profit. similarly people have been calling a bubble in FAAGs even at 20 pe since 2010 as tech companies were bubble in 2000 causing a bust.
when people call names to a particular sector due to treacherous past but ones with sustained profit, consider that sector interests a value investor. a value investor laps up such companies for sustainability. value investor doesn’t buy every falling stock nor he buys every cheap stock. he buys sustainable companies at marked down prices.
to conclude a real value investor buys a stock that a short term speculator would buy after 3 years at 100% higher price than today.