Value Investing is all about finding market inefficiencies.

Below is a chart depicting Best Buy's annual return on invested capital (ROIC) contrasted with its stock price:

While ROIC has been predictable and consistently range bound for the last several years, the stock price has been anything but. It seems hard to believe that the market is efficiently pricing this security when its price can fluctuate wildly in relatively short periods of time while the company itself generates predictable earnings on capital. For example, if the company is worth X amount in early 2000, how does it become worth just one quarter of this amount 3 months later, and then three times this amount six months after that?

http://www.dividendgrowthinvestor.com/2009/04/value-investing-is-all-about-finding.html

A Decade of Investing in a Stock

The Reason for Investing Long Term

The value investing style has gotten back on its feet after trailing growth.

Tenets of Value Investing

Excess Returns by Decade for Undervalued and Overvalued Stocks

The value investing style has gotten back on its feet after trailing growth.

Value Investors are Futurists

My interest is in the Future because I am going to spend the rest of my life there. - Charles Kettering



Rear-view Mirror Investing

A stock you would love to have: Buy, Hold and Prosper

Crisis Events, DJIA Declines and Subsequent Performance

Average Daily Volume of DJIA over the Decades

How this investor continues to maintain a portfolio of highly under-priced companies

Old School Value Stock Portfolio Performance: Highlight On General Growth Properties Inc,

Dec. 03, 2009

In November, the Old School Value portfolio ended up 18.6% compared to the market 5.4%. The absolute return since inception is now 40.87% compared to -1.26% for the market. 

YTD, I am finally above 200% but I’m more keen on continuing to maintain a portfolio of highly under-priced companies. 

Portfolio Movers

Big movers in November were DISK and PDII which moved about 25% in the wrong direction. DISK really is a dog, and I want to just sell it but it’s so small that the commission makes up about 5%. Although it’s probably one of my worst ideas, at least my asset allocation was correct and I haven’t lost much. 

PDII on the other hand has been going down without much news and since I like the business model and still believe it is very cheap, I’ll continue to keep it. My margin of safety applied to the buy price is what makes this position still +20%. 

The big gainers this month were GGWPQ and SALM. 

Distressed opportunities, i.e. bankruptcies, turnarounds, unfairly beaten stocks, are one of the most profitable investments one can make provided you buy when there is panic. GGWPQ has now overtaken my VVTV stake as the highest gainer at 1239% while VVTV is running second on 958%. SALM isn’t too shabby at330%. 

General Growth Properties, Inc (GGWPQ)

News spread that Simon Property Group hired a financial advisory firm to look into buying GGWPQ properties and more news that the debt restructuring looks to close early and on possibility good terms gave the price a good bounce not far below $7. 

ValueVision Media, Inc. (VVTV)

There hasn’t been huge news on VVTV yet but their latest quarterly report showed that they are increasing the conversion rate of visitors into customers. As a person that runs a retail operation, the ultimate goal is conversion. You could get huge amounts of traffic but if it amounts to no sales, it’s useless. With the Black Friday Thanksgiving sale here in the U.S. and the now popular “Cyber Monday” VVTV increased traffic, conversions and customers. 

One of the golden rules of retail being, it is much easier to sell to an existing customer than a new one, if the shopping experience was pleasant, I wouldn’t be surprised to see VVTV’s online presence continue to grow. 

Their new credit facility is another good sign as it provides cash. 

Salem Communications Corp (SALM)

I place SALM along with all of my radio stocks in the distressed pile because they were under immense pressure in 2008 with the lack of credit available to refinance their debt but things sure have changed. 

Knowing that these companies were throwing off big chunks of FCF, they were able to pay down debt aggressively from their organically generated cash from operations and keep up with their payments. 

SALM has gone ahead and done better as the company was able to successfully tender their “old notes” which were due 2010. The new notes are due 2016 which positions them to focus on the business and provides room to breathe. They also received a credit upgrade which will only help with future borrowings. 

These distressed/turnaround/cheap stocks remind me of David Dremen’s rule no.12

Rule 12: (A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.

(B) Positive surprises result in major appreciation for out-of-favor stocks, while having minimal impact on favorites.

(C) Negative surprises result in major drops in the price of favorites, while having virtually no impact on out-of-favor stocks.

(D) The effect of an earnings surprise continues for an extended pe riod of time.

Portfolio Trades

More selling than buying in November. 

1. Bought more INSM 

After reviewing the quarterly report and financial statements for the 3rd quarter, things look to be going pretty good at the company. They’ve been paying back debt and cash burn isn’t a worry at this point. 

I’ll just have to continue waiting to see what their strategic plan is. I wish they would just decide what they plan to do and stop paying their financial advisors. 

2. Sold KTII @ $101.39 for a 87% gain 

My latest review of the company as I went through the 2009 best small companies list showed that the latest figures indicate KTII is worth around $125. My mistake for not reviewing my investment. I watching to see if it goes back down to the $80 range where I can hopefully pick a new entry point. Intrinsic value just seems to steadily increase. 

Although growth is planned to come from acquisitions, they haven’t made any moves for a while so I believe that they are always concentrating on the business and looking for the best possible decision without wasting our shareholder’s equity. 

3. Sold a little over half of my position in SALM @ $3.95 for roughly 220% gain. 

Sold it as I believed it was very close to my intrinsic value but volume was very thin so I wasted about $40 on commission because I didn’t know orders were considered new again even if you use the “until canceled” option. 

4. Bought BOLT 

Missed my original entry point by a couple of cents but just increased the order a few percentage points and locked in my new position. 

Solid company with strong fundamentals and history. A niche player that reminded me of KTII. It’s currently in an industry wide down cycle and unduly punished to a great entry for value investing. 

I originally mentioned the idea in the value stock picks section of the value investing forum. 

5. Cash slightly reduced to 21% 

 

 

Disclosure

I hold all stocks mentioned except sold positions. 

Jae Jun 
Old School Value. 



http://www.gurufocus.com/news.php?id=77922

Relative USD Returns of US, Developed and Emerging Markets

PEG Ratio

by John Jagerson

Usually value investors are looking for stocks with low value multiples or ratios. While there are many of these, probably the most popular version is the P/E or Stock Price to Earnings ratio. The drawback to a P/E ratio is that it does not account for growth. A low P/E may seem good but if the company is not growing, its stock's value is also not likely to rise.

The P/E ratio can be enhanced by including growth and turning it into the PEG ratio. A PEG ratio is calculated by dividing the stock's P/E ratio by its expected 12 month growth rate. 

One of the most notable proponents of this analysis was Peter Lynch (of Fidelity Investments fame) who suggested that a fairly valued stock will have a growth rate roughly equal to its P/E ratio. 

That means that a fairly valued stock will have a PEG ratio of 1. A lower PEG ratio may indicate a good value and a PEG ratio much greater than one could indicate that a stock is overvalued.

 


Fundamentally speaking, the PEG ratio is more than it appears. In one ratio you have established that the company has profits, growth expectations and a reasonable stock price relative to its financial performance. These are not always givens in today's stock market. Using some minimal fundamental screening within a well diversified portfolio is a great way to remove some volatility from your own portfolio's equity curve.

http://www.learningmarkets.com/Stocks/20081030703/using-the-peg-ratio-and-value-investing.html

PBB has been and is still a very rewarding stock.

Blog Capsule: bullbear vs Moolah on PBBANK

http://fusioninvestor.blogspot.com/2008/07/blog-capsule-bullbear-vs-moolah-on.html

Consequences must dominate Probabilities

http://myinvestingnotes.blogspot.com/2008/10/consequences-must-dominate.html

What lessons can be derived from the above, if any?

Was it luck, discipline or serendipity?

I bought PBB at these dates and at these prices.  There were no sell transactions.

			03-Apr-07		8.75
			24-Apr-07		9.25
			05-Jul-07		9.7
			15-Aug-07		9.5
			15-Aug-07		9.5
			22-Aug-07		8.75
			28-Aug-07		9.35
			25-Sep-07		9.55
			28-Jan-08		10.7
			11-Jun-09		8.95
			12-Oct-09		10.52
			12-Oct-09		10.48
		PBBANK	20-Jul-10			12.2

Nestle is slow and sturdy in its performance

Dutch Lady climbs higher

PetDag continues to deliver

Value Investing versus Growth Investing: Know The Difference

Typically when you read about investing, you would come across the terms value investing and growth investing. Both mean different things, and what investment style you would use depends on the kind of person you are. I can bet, that most investors do not really understand the difference between value investing and growth investing. If you are one of them, this would be a good time to get it right.

Value Investing
Value investing is the strategy of selecting stocks that trade for less than what they are really worth. Value investors keep looking for stocks that are under priced but have excellent financial record. This information can be obtained by looking at the financial statements (balance sheet, income statement). Value investors typically take into consideration attributes like low price to earnings ratio (P/E), price to book ratio (P/B), price to sales ratio (P/S) and high dividend yields. In short, value is defined based on low valuations (low price ratios and high dividend yields) and slow growth (low growth rates for earnings, sales, book value, and cash flow).

Value investors beg to differ. They generally do not agree with the fact that current market price of a stock reflects all the information there is to know about the company. Value investors tend to put more weight on their judgments about the extent to which they think a stock is mispriced in the stock market. They will buy the stock, if they believe it is under priced and sell it, if they believe it is over priced. The art most value investors try to master is buying stocks of good companies going through a rough patch, because that is the time when the stock price will be under priced. Value investors would then ride out the rough patch and reap in their gains during better times, eventually selling them when their fair value is reached.

Growth Investing
Growth investing works exactly opposite to that of value investing. Growth investors focus on stocks with faster growth potential.

Growth investing is the strategy of selecting stocks that show signs of faster growth. Growth investors keep looking for stocks that will grow faster compared to its industry or the overall market. Growth investors focus on stocks trading at high P/E, P/B and P/S ratio and do not care much about dividend yields. In short, growth is defined based on fast growth (high growth rates for earnings, sales, book value, and cash flow) and high valuations (high price ratios and low dividend yields).

Value versus Growth
Value investors generally plan to hold the stock for a longer duration, since they believe over a period the stock will come out with flying colors. Value investors are generally patient investors. On the other hand, growth investors believe that soon the company will grow rapidly and so will its stock price. Growth investors are generally in for short time frame compared to value investors. In general, value stocks tend to hold up better during stock market downturns.

So are you a Value Investor or a Growth Investor ??

http://rantaboutit.blogspot.com/2007/06/value-investing-versus-growth-investing.html

How to Limit Downside Risk when Investing

The debate between growth and value investing

Top value stocks in Indian markets


Submitted by TheIndiaStreet on June 12, 2007 - 6:44am.


By Sundaramurthy Vadivelu
The India Street

Introduction:

Before investing in any particular stock, one needs to know about the company, its business, key areas of strength, possible risks, top management, financial performance like book value, earnings per share, dividend yield etc. This is called ‘fundamental analysis’ and focuses only on the company fundamentals. It simply ignores the stock market conditions during that period. This is in complete contrast with technical analysis, which discounts all the factors while the market price is determined. In other words, the technical analyst believes that the company performance, business forecast etc. are always discounted by the market participants while trading the stock.

It is ultimately a personal choice. For an investor who can’t sit in front of a computer for hours to analyze the market and find the right stock to invest, be it short term or long term, fundamental analysis could be useful. Several financial newspapers publish the important data such as book value, earnings per share etc. along with stock quotes. This can be used for fundamental analysis.

Earnings of a company are very important to an investor. Once the company’s operations are stabilized and starts earning, it is reported to the stock exchanges. The audited results may also be published in popular newspapers. Good earnings are an indication of company performance and capital appreciation.

Earnings per share is a term that is used to reflect the earnings of the company for each outstanding share. ‘Outstanding’ means the shares that can be traded in the stock market anytime. This is arrived after deducting promotors’ shareholding, locked in shares, etc. from total number of shares. EPS is calculating by adding the total earnings for the previous 4 quarters and then dividing it by the total number of outstanding shares.

P/E ratio is another term that can tell the investor how much the market is willing to pay for the company’s earnings. It is simply the market price divided by the EPS.

The book value of a company is the company's net worth, as measured by its total assets minus its total liabilities. This indicates how much the company would have left over in assets if it went out of business immediately. As with EPS, book value per share is arrived at after dividing the book value as per last balance sheet by the total number of outstanding shares.

Price to book value (PBV) is the ratio between stock price and book value per share.

These two parameters can help an investor to identify “growth” and “value” stocks in the market.

Growth stocks usually have high P/E and PBV ratios, which means that these stocks are relatively high-priced in comparison with the companies’ net asset values. In contrast, value stocks have relatively low P/E and PBV ratios.

Most growth investors are willing to pay a fairly high price for a stock whose earnings they expect to go up higher. They aren't completely insensitive to price, but the question of whether a stock is cheap or expensive isn't the real question for them.

Value investors view cheapness as a major factor. They focus on stocks that are cheap. Just as growth investors are not totally insensitive to price, they are not completely indifferent to earnings progress. However, they are willing to sacrifice some earnings growth for the sake of cheapness.

The following tables give us “growth” and “value” stocks in Indian stock market.

Table 1: Companies with high P/E ratio

Some of these companies, such as Aban Offshore, Educomp Solutions, Glenmark Pharma and UTV Software have gone up by more than 300% in the last 1 year.

Table 2: Companies with high PBV ratio

We can once again see Aban Offshore, GMR Infrastructure, Educomp Solutions and Glenmark pharma in this list.

Table 3 : Companies with low P/E ratio:

While choosing a stock the investor needs to be aware of the current business conditions in the industry it belongs to.

Table 4: Companies with low PBV ratio:

Conclusion: The debate between growth and value investing has been going on for years. Both styles have their positives and negatives and need different requirements on investment research.

A truly diversified portfolio will have both growth and value stocks. In value investing, correct stock valuation as well as the right time of entry is very critical whereas in growth investing, it is essential to identify businesses that face little or no threat of erosion so that earnings growth of those companies is not affected.


http://www.theindiastreet.com/2007/06/top-value-stocks-in-indian-markets.html