‘99% of the people wouldn’t follow’ a checklist from Warren Buffett for analyzing a company
- How and why did you get started investing? What is your background?
I got started in the industry in 2000. I wanted to become a financial adviser because I wanted to learn how to research stocks like the guys on Wall Street. I wanted to learn what made Warren Buffett (Trades, Portfolio) so successful while most Americans failed to achieve success investing in the market. What did he know that the rest of us didn’t? After I passed my licensing exams, the company I was working for sent me to New York for three weeks of training. I thought this is when I was going to learn everything I needed to know to be a successful investor. Unfortunately, my first two weeks of training were nothing but sales training classes. The last week was training on all of the proprietary products. I was taught to be a salesperson. I learned absolutely nothing about how to invest money. And I was about to invest people’s life savings. After a few years of not having a clue about what I was doing and having clients teach me stuff about the market, I started to self-teach myself. I bought every book I could read. I started taking personal one on one coaching courses, etc. I have been an adviser since 2000, but I have been an investor since 2005.
- Describe your investing strategy and portfolio organization. Which valuation methods do you use? Where do you get your investing ideas?
My investing strategy is value investing. If it’s a good strategy for the best investor in the world, then it’s a good strategy for me. When I was self-teaching myself, I studied many different strategies such as momentum investing, trading, turnarounds, etc., but the one that I had the most interest in and the strategy I thought I could be the most successful at was value investing. My portfolio organization consists of diversifying into no more than 20 companies at once with approximately 5% allocation into each. I found that more than 20 is more difficult to track and manage each company, but less than that is putting too many eggs in one basket. This prevents me from blowing up my portfolio if my research is incorrect, or if something happens that’s out of my control such as fraudulent account.
I use 13 valuation methods. Some of them look at the rear-view mirror by looking at historical valuations. Past performance is no indication of future results as we all know, but if we are looking at stable well-run companies, which is the heart and soul of value investing, we can get a pretty good indication of what could happen in the future based on historical results. I also use several calculations that use future earnings, future cash flows, etc. The best results I have achieved have been from valuing a company based on historical price-earnings (P/E) times TTM EPS or if the company has a successful track record at predicting earnings, I will use estimated earnings instead of TTM. This seems to work very well with stable companies. I used this method with Cummins (NYSE:CMI) and Manpower Group (NYSE:MAN) this year and the stock hit the price target right on the money.
As far as where I get my ideas from, I am not too proud to say that many of my ideas come from other investors. I always read Hedge Fund Wisdom when the quarterly report comes out to see what the biggest hedge funds are buying (or selling), I also follow Dr. Paul Price from GuruFocus and Real Money Pro religiously. I check the New York Stock Exchange (NYSE) and NASDAQ daily decliners list daily to see if any companies I am familiar with had a major decline. If so, I try to figure out why it declined so much and if it’s a major problem to be aware of or if it just happened to be an overreaction to a news event. I like using Joel Greenblatt (Trades, Portfolio)’s magic formula. I’ll take the companies in there and do my own research to see if it also fits my criteria. Another place I look for is Morningstar’s 4 and 5 star rated companies. The rating is based on a valuation approach, but many of the undervalued companies on there are undervalued for a reason so you have to do your own research when picking ideas from that list. As for the 13 valuation methods I use, I rely on just a few of them for my true values, but the others just give me confirmation that my main ones are accurate.
- What drew you to that specific strategy? If you only had three valuation metrics, what would they be?
What drew me to this strategy is that you can put so many odds of a successful investment in your favor by identifying a great company that has consistent earnings, growing book value, excellent cash flow, little to no debt, great management, a track record long enough to be able to put an accurate value on the business, etc., etc. I had clients ask me about Tesla (NASDAQ:TSLA) awhile ago, and so many people were putting their money into that stock, because it was a momentum stock, but to me, that is just a risky proposition. If you look at the financials, they are hemorrhaging money, loaded with debt, no earnings, but people were investing in it because it was the hot stock at the time. Momentum stocks will lose their momentum and I would hate to be the person who dumped money into it right before the momentum stopped.
Tesla worked out for a lot of people, but for me, it was too aggressive. I couldn’t even begin to put a value on it because it didn’t have a track record. I wouldn’t ever buy anything I can’t put a value on. That’s gambling to me. I live 30 minutes from Atlantic City so I will go there if I want to gamble, but as for investing I want to be the casino. I want the odds in my favor, therefore the value strategy is my game.
If I could only have three, I would use the historical P/E x EPS for an expected price based on historical valuations (thank you, Dr. Price, for teaching me this), discounted cash flow and for stocks paying a dividend, I would use either the dividend discount model or the historical dividend yield to current dividend method.
- Which books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? Which investors do you follow today?
You can’t be a value investor without reading the bible of value investing, “The Intelligent Investor,” especially chapters 8 and 20. The first book that really made things easy for me to understand was “Rule #1” by Phil Town. I also love “The Little Book That Beats the Market” by Greenblatt as well as “You Can Be a Stock Market Genius” and “One Up on Wall Street” by Peter Lynch, “The Dhando Investor” by Mohnish Pabrai and The Essays of Warren Buffett.”
I have been lucky enough to be personally mentored by Town and Price. They have taught me what value investing is, how to value a business and how to identify a great business that I would want to own forever if I could. Today, I follow Price and Town; other well-known investors are Greenblatt, David Einhorn (Trades, Portfolio), Pabrai and Seth Klarman (Trades, Portfolio) to name just a few.
- How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?
Ideally, I would like to hold on to it forever because it’s much easier holding onto a great company that has already made you money than it is to find the next one, but what makes sense in theory doesn’t always make sense in real life. For example, we bought Target (NYSE:TGT) shortly after the data breach brought the price down from $67 to almost $50 per share. I waited about 11 months for that to start moving, but once it did, it went up to $80 (we got out around $78). I got out because the stock hit a valuation higher than it has been in years. Companies will eventually revert back to their mean, and that is what happened with Target. As of Dec. 27 Target has only reached our sell price briefly – in June 2015 and again in March of this year, but it hasn’t moved past that ceiling.
We sold for two reasons. First, and most importantly, it became too overvalued. There was a better chance of Target to fall to where it should be priced than for it to continue to trade at an even more overvalued price. Second, it lost its velocity. When we own something that is moving up and up and then eventually stalls out, we will take the profits and put the proceeds elsewhere.
Another great example of this is Disney (NYSE:DIS). It’s probably my favorite company. This is a stock I would like to never sell. It has been a wealth creator over time, but if you look at the valuation in August and November 2015, it traded 40% higher than its five- and 10-year average P/E (17 and 16 P/E compared to a 24 P/E). It was so overvalued that it had to come down. The last time it was that expensive was in 2003. I do not want to be the investor who paid more for those shares than anyone else in a 13-year time frame. If you owned Disney in October 2015, it was an obvious sign to get out.
Guess what happened? The great stable dividend payer fell from approximately $120 down to $90. As much as I love Disney, I am not going to keep it at those levels. I will take my profits and put it elsewhere or wait for it to come down. I bought back in at $95 and again at $90; now it has started it’s climb once again. I usually hold on to a stock for as long as it takes to get to its target price, and once it gets there I decide if we should keep it or get out. I base that decision on the news that I read about the company and also based on what the quarterly reports say. The time it takes to know if I am right or wrong depends. I knew for a fact that Manpower was a great company which was given to me at a steal of a price because of overreaction to the Brexit. It took about three months for it to start to move up and once it did, it kept going. I knew Disney was a good price (not great) at $90 because I knew what historical valuations were and what the stock did when it reached those levels. However, other companies I bought took up to a year before it started to pan out.
As for the losers, it only took me a few months to realize that I may have missed something in my analysis. I write down in my journal what I did wrong, and I try to avoid that mistake like the plague the next time around. In the Target and Disney examples, I explained why I may sell one of my holdings. A few other reasons for me to sell would be if the story behind why I bought the business started to change, then I would sell, and of course if there is a fraudulent event, I would not want anything to do with the business. Lumber Liquidators (NYSE:LL) crashed from 120 to its current level at 16 due to fraudulent reporting of formaldehyde in their products. American Realty Capital crashed because of fraudulent accounting and now their CFO is in prison. The stock fell from $11.50 the day of the news to $6 during the course of that year. No reason to own a company you can’t trust.
- How has your investing approach changed over the years?
It has become more streamlined. I created a very detailed checklist that I have been using the last few years and I am constantly making changes to it. As investing evolves, so does the checklist. There are so many things to look at and without the checklist, it’s very easy to miss something. So I do not make any investment without going through that checklist item by item.
- Name some of the things that you do or believe that other investors do not.
I spend a lot of time on valuations. Many people I know adopt one or two methods that work for them, but I think that different companies in different sectors call for different valuation methods. I would value a newer growth company differently than I would a stable blue chip. A simple DCF model is good but not in every circumstance.
- What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?
I really love Under Armour (NYSE:UA)(NYSE:UAA) and Disney. I like Under Armour because the products are very comfortable, it has a great brand recognition, and I love Kevin Plank, the founder and CEO. I was reading one of the annual reports and it said that he voluntarily reduced his salary from $500,000 to $26,000 because that is what he made when he first started Under Armour. He wants his compensation to be based on stock performance. That is the kind of guy that I want running a company that I am invested in. His interests are aligned with the shareholders.
I also love Disney. Its theme parks are always packed, and it goes out of its way to make its guests feel special. It truly is the happiest place on earth. Their movies are very well done. I have a 4- and 10-year-old. I have probably seen Disney movies about 10,000 times. It makes great decisions with its acquisitions such as Lucas Films and Pixar. I like that it is also thinking about acquiring Marvel but hopefully less than a 29% premium. The Disney experience for me has always been a great experience. The company is a pretty predictable company, which I like and it has been a wealth creator over time.
- Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?
I do use stock screeners. I like the screeners on Morningstar. I use the screeners to give me 4 and 5 star rated stocks. M* uses this star rating based on a potential valuation so 5 stars are the most undervalued, and 1 stars are the most overvalued. I’ll start there. I also use Value Line to look at the current P/E compared to historical P/E. That always gives me some ideas to dig in to. It also has a great tool which tracks the industries that are out of favor. An out-of-favor industry won’t stay down forever so you can find some gems in there, such as Cummins when it was at $85, Now it’s over 135. GuruFocus has a lot of excellent screeners as well. If you don’t want to use screeners, then put a few companies on your watchlist, learn as much as you can about them and follow them. Once you get to know a company very well, it’s pretty easy to determine if it is undervalued, fairly valued or overvalued.
- Name some of the traits that a company must have for you to invest in, such as dividends. What does a high quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.
A great company has predictable earnings, earnings that are constantly growing and not jumping around up one year down the next, up again, etc. I want to see book value growing, good cash flows, high net profit margins compared their competitors, little to no debt, I also like to see sufficient ROA, ROIC, ROE. I want a shareholder-friendly management like Kevin Plank. I like organic sales growth and not growth just because of acquisitions. Disney had a lot of success with acquisitions, but I have seen many other companies get blown up because of poor acquisitions. Ideally, a lot of room for growth. When I first bought Under Armour, it was making a push into the European market. At that time, only 6% of its sales came from there. To me that’s a ton of opportunity.
Warren Buffett says that a company must have a moat. Does this particular company have a competitive advantage that will prevent its customers from leaving? Dividends are a bonus, but I am not buying a company just because it has a dividend. I want a high quality company, and I want it at a discount. That’s how you achieve success investing. A bad investment in my opinion has unpredictable earnings and cash flows, tons of debt, maybe a single customer that makes up a big percentage of its revenue. That burned me once. Incompetent management or worse, unethical management is a sign of a bad company. If it can’t get a decent ROI, ROA, etc., why not? Is it buying back shares at a discount price or just for the heck of it to temporarily boost earnings? Is its business going obsolete, and is it doing anything about it – i.e., Radio Shack, which is now a worthless penny stock.
- What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard cut rules?
I do use a checklist, and I wouldn’t think of investing without it because there are too many important things that I look for and if I miss one of those when doing my research, it could cost me. I started my checklist about four years ago, and I still make changes to it frequently to make it more easy to use. My first step is to identify if a company is worth digging into deeper. It only takes about three minutes to determine if something is garbage or worth a second look. I use screeners for this. Once I find something on the screener, I will go onto Value Line and Morningstar to confirm if it’s worth looking at further, and if so, out comes the checklist.
Once I identify a great company and read the company reports, then I will take out my 13 valuation calculations. I’ll compare that with some other resources that offer target prices such as Morningstar, Tip Ranks, GuruFocus, and S&P Capital IQ. If everything looks good, I will open a position. Otherwise, I will put it on my checklist or maybe sell some puts at a strike price that represents a good discount if I have to buy the stock.
One of my hard cut rules is never go by what the pros are doing without doing my own research. I took a shortcut with Horsehead Holding (ZINCQ) because three big-time investors who I follow were all buying it at the same time. I read their reasoning for the investment, and I jumped aboard with both feet. However, after looking at the financials, the company was nothing more than dog sh#*.
I would have never bought this on my own if I ran it through my checklist. I don’t think one thing would have passed. Well, the company went bankrupt, and I lost my entire investment. It was a hard lesson, but I learned to never rely on anyone else ever again without putting it through my own research. A few other rules I have is to never invest in China stocks. I know I am missing a lot of potential winners, but their regulation on accurate accounting is so loose, and I don’t want to base an entire projection on a number that could be false. Lastly, I never had a lot of luck with financials so I tend to stay away from that sector.
- Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?
I start off using Morningstar data, Value Line and GuruFocus for my preliminary data and then I go to the company’s most recent reports and go back from there. Buffett says you can’t go by just the numbers alone so I do read the letters to shareholders, articles about the company on Seeking Alpha as well as other sites. I do as much research as I can on the management team, specifically the CEO. I have never called management, but I do call investor relations quite often.
- How do you go about valuing a stock, and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some of examples.
When I value a stock, I first look to see how far back of a track record they have, how predictable are their earnings, and are they a stable company, a growth company, do they pay dividends, etc., and I will base my valuation methods on that. I have 13 methods for calculation intrinsic values. Some work better for growth companies while others work better for stable companies that do pay a dividend. I wouldn’t use a dividend discount model on Under Armour since it doesn’t pay a dividend, but that would work for a company like Coca-Cola (NYSE:KO). A great example of when cheap isn’t cheap enough is when my brother-in-law and I were valuing Lumber Liquidators. The numbers looked great, really great as a matter of fact. However the price wasn’t at the discount we were comfortable with. A week or two later 60 Minutes did a story on the fraudulent reporting of the amount of formaldehyde that was in its flooring products. It had to meet California standards, and it did not even though management and the manufacturers knew it did not meet standards. The following day the stock plummeted from approximately $70 to $35. However, it’s never cheap enough on news like that. A few months later the stock fell to $12.
Another example of cheap not being cheap enough was when Merck (NYSE:MRK) announced they were pulling Vioxx off the shelves because the medication caused several people to die from heart attacks while being on the medication as well as others who suffered from heart disease and strokes as a result of Vioxx. The stock fell from approximately $55 to a low of $17.80. That was an excellent price; however, there was a huge unknown about how much Merck would have to pay out in settlements. Because of that reason, Merck was never cheap enough for me to buy back then. It has fully recovered, but it took several years to get back to where it once was prior to Vioxx.
- What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas and why?
Bargains are still out there, but they are becoming much harder to find. I think the entire market is overvalued and that makes finding good quality companies at the right price much more difficult. The Buffett Indicator (market cap to GDP) is 118.7 today. For reference, anything over 115 is considered very overvalued. The Standard & Poor’s 500 has historically traded at a 15.5 P/E. Today it is 25.98. With the market at that kind of level, it’s going to be tougher to find what we are looking for as value investors. I like to look at sectors I understand so retail is one that I look at frequently, but if a company looks good and it’s not something I understand completely, I will do my research to try and understand it. If I can’t understand it, I won’t invest in it. Big Blue is a mighty powerhouse, and it has made investors a lot of money over time, but when I read the IBM (NYSE:IBM) annual report, I fell asleep. Needless to say, when a few of my mentors were buying IBM, I decided not to.
- How do you feel about the market today? Do you see it as overvalued? What concerns you the most?
As I mentioned before, I do feel the market is overvalued. It’s harder to find what we are looking for. That being said, I think it’s a great opportunity to sell puts on companies that we want to own, but not at its current price. If you have a non-IRA, this strategy is great. In an IRA, you have to have the cash set aside to buy the stock if it gets put to you. I haven’t purchased anything since October and that was an additional buy to an existing position. The last new position I entered was in September but I have been actively selling puts. What concerns me is how the government will be spending money come January. The debt is a big issue. I like Donald Trump’s plan to cut taxes and rebuild our infrastructure, etc,. but how much will that cost and where are we going to make up the revenue once tax rates are cut? He is a businessman, which I like, so hopefully that knowledge will be put to use to get this economy rolling, but it’s too soon to tell how that will play out so that is my concern right now.
- What are some books that you are reading now? What is the most important lesson learned from your favorite one?
I just finished “Mastering the Money Game” by Tony Robbins. I bought the book because the last few chapters were interviews with Ray Dalio (Trades, Portfolio), John Bogle, Schwab,and Paul Tudor Jones so it was interesting to hear what they had to say. I am reading ‘The Investment Checklist” right now and after that, I have Bruce Greenwald’s book, “Value Investing – From Graham to Buffett and Beyond.” The lesson I learned from my favorite book, “Rule #1,” was never pay “sticker” price for anything. Buy dollar bills for 50 cents. I also learned what to look for to determine if the company is a Buffett-worthy company.
- Any advice to new value investors? What should they know and what habits should they develop before they start?
Don’t paper trade because you will get a false sense of skills. When real money is on the table, emotions will get in the way. Emotions don’t exist in paper trading. Start off very small, even if you can only afford five shares of a few companies. This way, you can learn what it is like from an emotional standpoint to buy when everyone else is selling. Buying something out of favor isn’t easy, especially the first time doing it. Secondly, develop a checklist Day One. There are a lot of things to look at when analyzing a company, and you can’t miss anything or else it could hurt you. The research isn’t a difficult thing to do so don’t be intimidated by the process. There are just a lot of things to look at, and a checklist makes it so much easier.
- What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?
I always look at the Value Investors Club for ideas. This is Greenblatt’s site. I also use his magic formula site for ideas, too. A few sites that I read often are Old School Value, Greenbackd, Seeking Alpha, Value Walk and Rule One Blog. Rule One Blog is by Phil Town. Coattailing is a very smart and easy way to get ideas. Mohnish Pabrai said in an interview that most of his ideas he got from smarter wealthier investors. I do the same. I signed up for Phil Town Live to get weekly research and his real time trades as he makes them, I also follow Paul Price every day. On GuruFocus, I follow Pabrai, Greenblatt, Bill Ackman (Trades, Portfolio), Bill Nygren (Trades, Portfolio), Charlie Munger (Trades, Portfolio), Buffett, Klarman, Einhorn, etc. I will see what they are buying and put it through my checklist before I decide to buy.
- Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?
Two mistakes stick out very clearly in my mind. The first is Geospace Technologies (GEOS). The numbers looked good but a little choppy, which is to be expected from a small-cap company. It was growing rapidly, and it was undervalued at the time. I read the report and one thing stood out in the risk section of the annual report which I decided to ignore: a single customer represented a big portion of their revenues. I read that and still purchased Geospace at $55. The customer did leave and as a result, the stock went to $20 real quick. I’ll never make that mistake again.
The second mistake was when I bought Horsehead Holding. I did so because three of the guys I closely follow bought it at about the same time. I took a shortcut and didn’t do my own research. The company went bankrupt. After going back and looking at the financials of the company, they were horrible. It wouldn’t have passed my initial screener. I thought they knew something that I didn’t, and I took a shot. I won’t rely on anyone again without doing my own due diligence. Coattailing will generate many ideas for you, but you have to do your own research, too. Both of those mistakes where teachable moments. The one positive thing that comes from a bad investment is that you learn from it and you don’t make that same mistake twice.
- How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?
I’ve been doing this long enough now that I have learned to control my emotions. When the market goes up we are all happy, but when it goes down, I now salivate because that is when the real money is made. I never used to be like that. As most people, I would get scared to death of a crash especially being a financial adviser managing people’s life savings. If you truly know valuations, you can identify times where you should be out of positions or at least take money off the table. I think that time is now. I look at fluctuations as just a daily part of the game. You can’t let it affect you.
If you are in good quality holdings, you will be OK if the market fluctuates. I look at fluctuations as a good opportunity for adding to existing positions at better prices. When the market crashes, that is when you should get excited and start loading up the truck. We shop for sales when we buy cars, we use coupons at the grocery store, so why not take that same mindset to buying stocks? A market crash gives us those sales. Imagine 2008 happening all over again knowing what we know now. Under Armour was just $2 per share. Apple (AAPL) was $85 and then shot up to $700 before it split. Priceline (PCLN) was $80 and then it went to $1,500. Corrections and crashes seem terrible at the time, but as value investors, that is where wealth will be made. Be ready for the next correction/crash and profit from it instead of being scared of it.
- How does one avoid blowups in value investing?
Position sizing. I learned this from Price. I don’t put more than 5% in any one position. Sometimes I will buy two companies that are in the same sector, but no more than two. Having as much as 20 different companies in 10 to 20 industries will give you the diversification you need to avoid blowing up your portfolio.
- If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investingwise compared to the indexes?
I bought Disney this year. It is one of my favorite companies. I went to Disney World this summer and had an amazing time as I always do when I go there. My son has been watching “Toy Story” and “Cars” on repeat since that trip. It’s a well-run company, great service, great products, etc. I have wanted to own Disney for awhile, but it wasn’t ever cheap. The stock hit a high of 120 in November 2015 which represented a valuation higher than it has been in 13 years. It fell from $120 to $88, which now gave me the opportunity I have been waiting for. I didn’t get it at the margin of safety I usually look for, but I felt safe buying in at $95 and again at $90. It has had a recent run and now it’s at $104.
Last year Cummins was in an industry that took a big hit. Early this year the entire market brought the price down even more. The stock fell from $130 to about $80. I got in at $86 in February for my clients and myself. It’s a nice stable blue chip name. Earnings have been more unpredictable than I would like, but every time Cummins hit the level it hit when I bought in at $86, it has always had a substantial rebound. This time was no different. The stock went on a tear this year. We got out when the valuations were at a 10-year high. The stock was about $128 when we got out. Unfortunately for us, it went to $137. Oh, well. We still made an excellent 48% return in less than a year.
In June I took advantage of Manpower. It’s a great company with no debt and a solid financial statement; 65% of its revenues came from Europe. When the Brexit occurred, this company fell from $90 to $57. To me, that was a huge negative overreaction to a news event. Their earnings were $1.72 in 2010 and closed out 2015 at $5.95. The company is moving in the right direction, but the stock was offered at the same price as it was six years ago. The historical P/E for Manpower is 16. It was 9 at the bottom of the Brexit. I got in at a P/E of 11.5. Every year since 2011, Manpower has traded at a 16 P/E or higher. If that’s the case, the stock should be $95 (16 x 5.95 TTM EPS). That was my high-end price target. Every year over the last four years including this year, it has reached $85. I put that as my lower-end target. I used all of my valuation calculations, and they all fell within a similar range. So $85 $95 was what I was shooting for when I bought in at $70. Today the stock is at $90. I recently purchased Under Armour and Enterprise Products (EPD). We will see how that plays out.
- Here’s a fun one – What stock would Buffett or Benjamin Graham buy today if he were you?
Probably not Wells Fargo (WFC) even though he’s a huge shareholder. If Buffett or Graham were me, they would probably be a lot more patient and would be on the sidelines right now.
- What is the most contrarian investment you’ve ever made? Why did you make it and how did it turn out?
Geospace because everyone was running for the hills. I should have been running, too. I hate costly lessons.
- If most fundamental investors study the greats (e.g., Buffett, Klarman, etc), surely value investing is no longer a “contrarian” investment strategy?
I think it will always be a contrarian strategy. If Buffett were to give every American a step-by-step checklist of what he does on when analyzing a company, I still think 99% of the people wouldn’t follow it. Here’s why I believe that: It’s an emotional game. If you know what something is worth it is very easy to buy it on sale and sell it when it gets to its intrinsic value or above its intrinsic value. However, buying something on sale usually means it’s out of favor or the market as a whole is falling. Most people are too scared to buy when the sky is falling. Once an investment pans out, it’s emotionally hard for the average investor to sell a winner. Emotions are too hard for the average person to overcome; therefore I still think that this strategy will work. It hasn’t failed since Graham introduced us to it decades ago, and it’s going to continue to work for decades to come.