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Long Term Value Investing: The Buffet & Benjamin Graham School of Investing

It's rarely in fashion. It can often be boring. It can take time for the markets to value fairly. What is it?  It is the long term value investing methodology used by some of the greatest investors of all times such as Warren Buffet and Benjamin Graham. The basic premesis is to look at the intrinsic value of a company and if it is priced for less than what the market is saying it is worth you have a net price advantage.

If the company - in addition - has steady growth prospects, a strong cash position, a leading brand, is well managed and is expected to return growth and profits of "x" percent a year and pays out a dividend, then a value investor can make a reasonable investment assessment that the company will not only be alive and well, but also worth more than what he will be paying for it, especially if it's instrinsic value is more than what the market is saying it is worth.

Some of these companies such as: insurance (think GEICO), railways, concrete or real estate are typically boring, steady businesses that rarely if ever make the news. Boring however can be very profitable in the long run. Boring companies are not just restricted to more traditional businesses and industries. The can also include different types of technology companies. You may be familiar with SAAS (software as a service) companies such as Salesforce or Adobe and others that lead in their field. These companies can represent high growth opportunities, especially once they become cash positive and profitable. A SAAS disruptor and leader can be very boring and profitable in the long run. Once a software platform has been developed, it is continually being iterated, but the investment for improving the platform is getting less and less and almost negligible compared to the revenue and new net profit of bringing each new client onboard.

While few would argue that Amazon, Microsoft, Facebook, Apple and Netflix are leaders in their fields, in some cases these companies were losing money for years before they became profitable. In their formation years, these are better suited for venture capitalists and like minded individual and institutional investors and would not be considered a long term value proposition by a value investor. Once profitable and on the way to becoming a leader in their field, such a company may well become more of an attractive target for a value investor.

Warren Buffet is perhaps the most successful value investor in history. The companies the comprise Berkshire Hathaway's protfolio were not sexy or the the flavor of the day. They were boring and very predictable growth businesses, that may have a bad year in every 10 or so.

Finding and monitoring these companies can take time, research and due dilligence. If you dont have it or are not interested in this area, find someone, an investment advisor, who does. Your goal as an investor is to secure a healthy retirement portfolio that you can retire on and leave as a legacy to your loved ones.

Boring, profitable, cash-rich and good management should comprise a part of your portfolio.

  • invest in what you understand
  • invest from the perspective that you would buy the entire company
  • invest in market leaders with strong brands
  • invest in companies that have strong competitive advantages
  • invest in companies that are cash-rich
  • invest in companies that have strong management
  • invest in companies that are priced at a discount to their net worth and have strong growth prospects for the next 10-15 years.
  • invest in companies that pay a dividend

If you find companies that meet the above criteria, you will sleep well at night and worry less.

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Hawley Advisors
1600 South Main Street, Suite 190
Walnut Creek, CA 94596
Phone: 925-906-9800
Fax: 925-906-9884
info@hawleyadvisors.com

 

 

Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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