Value Investing

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Culverhouse Investment
Management Group
Training Sessions – Fall 2014
Day 1 – Intro to Value Investing
CIMG OVERVIEW
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Background
• CIMG
– The University of Alabama’s first investment group
• Student-run, student-led
– Founded in fall of ‘08, initial investment fall of ‘09
• PURPOSE
– Provide members experience in:
• Valuation techniques
• Value investing
• Collaborative thinking
• Organization participation
• Personnel management
• Program development
3
Structure/Operations
• STRUCTURE
– Board of Directors (BOD)
• Consists of one president and four vice-presidents
• Responsible for buy and sell decisions
• COMMITTEES
– Meet throughout the week
• Majority of teaching via COMMITTEE HEADS
• Identify potential investments
YOUR ROLE
• Monitor current holdings
4
Career Performance
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VALUE INVESTING
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Investing Philosophy
• Value Investing
– Top down vs. bottom up
• We are bottom up
– Absolute return
• Buffett’s most important rules (1 & 2)
– Long-term time horizon
• 3-5 years
– Limit your risk  We hate risk!!!!!
– No prescribed parameters
• http://www.youtube.com/watch?v=ii6BUlPdUpA
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What is Value Investing?
• Strategy of investing in securities trading at an
appreciable discount from underlying value.
• We find stocks trading at market prices that
do not reflect the true value of the companies.
• “All intelligent investing is value investingacquiring more than you are paying for. You
must value the business in order to value the
stock”
– Charlie Munger
Value Investing
• “Better to buy a wonderful business at a fair price than
a fair business at a wonderful price.”
– Warren Buffet
• What to look for in a business:
1.
2.
3.
4.
•
Business you understand
Good long term economics
Able/trustworthy managers
Discount
Economic moat is critical
–
–
Low-cost producer or powerful world-wide brand
We want companies with a sustainable moat
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How Markets Work
• Company X wants to raise capital
– Debt
• Loan, Bond: fixed payments
– Equity
• Ownership, stocks: Claim to future income
• Always:
• Assets = Debt + Equity
• Debt/equity :::: IMPORTANT
Inefficient Market
• Value investing, initially used by Benjamin
Graham and David Dodd, rests on three key
characteristics of financial markets
– The prices of financial securities are subject to
significant and capricious movements (they
change)
– Despite gyrations there are securities which can
be valued (using financial statements)
– A value investing strategy is the only way to beat
the market in the long term
Mr. Market – The Drunk
• Benjamin Graham on the
stock market
Xerox Stock Price 1990-2014
– “The beauty of stocks is that
they sell at a variety of
prices. The market is a
psychotic drunk, and
sometimes Mr. Market does
very strange things. It’s built
into the system that stocks
get mispriced. Don’t behave
like the psychotic drunk.”
• Knocking on the door
12
STOCK RESEARCH
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Important Websites
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•
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•
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http://mycba.ua.edu/cimg
http://seekingalpha.com/
http://library.morningstar.com/
http://www.mergersandinquisitions.com/
http://www.investopedia.com/
http://online.wsj.com/home-page
http://www.sec.gov/edgar/searchedgar/comp
anysearch.html
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Identifying Opportunities
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•
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Value Screens
52-Week Low Lists
Value Blogs
13-F Filings
– Warren Buffet- Berkshire Hathaway
– Seth Klarman- Baupost Group
– Mason Hawkins- Longleaf Partners
– David Einhorn- Green Light Capital
– Mario Gabelli- BAMCO Investors, Inc.
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Evaluating a Company
• Once you have found a company you need to
do an initial evaluation
• This includes:
– Reading the 10-k to learn more about the industry
and company as a whole
– Looking for competitive advantages
– Checking financial health
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Conclusion
• Next lecture date: 10/21
– Same time, same place
• Between now and then…
– Read about value investing
– Berkshire Hathaway annual letters a good start
• Please address any feedback to Matt Lambert
at [email protected]
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