It’s no secret that markets and businesses continue to evolve as time passes. Understanding that you the investor has to change your tune, and seek value in different ways, is an extremely difficult thing to do.
You may hear people say “value investing is dead.” Well, when I hear that I think of a quote from the great Charlie Munger. Munger said, “All good investing, is value investing.” Investing is simply purchasing something now, for less than what you believe it will be worth in the future. Given that definition, all investing, in every asset class, is value investing. As someone who invests in expensive, high growth companies, I am not looking for cheap stocks. I’m not digging through company’s financials to see if on balance it’s cheap and miss-priced. I’m looking for a company that is cheap in relation to where it will be in five years. Most of the time that involves paying up for quality in a company I believe has the fundamental backing to make waves in its industry.
Let’s discuss a brief history on Warren Buffet and his investing style. Buffett started investing under Ben Graham. Graham was a “cheap” value investor, combing through companies financials carefully to see if the market had mispriced the company due to some special situation. Then, Graham would buy these cheap companies (often low quality companies) and wait for the market to see what he had previously seen. Once the stock rose, he sold it for a profit. Buffett practiced this style of investing until a man named Charlie Munger came along. Munger preached that value was not in cheap, but in quality. And as Berkshire Hathaway formed, they began buying higher quality companies with strong brands, good management, and moats around them. This, is what made Berkshire. The risky decision not to invests in the accounting, but in the harder things like people, brands, staying power, customer service, and culture. At the time, this was a new style, and it meant holding onto the stock for as long as the company continued to perform. This required Buffett to pay up, and to hold on to companies for much longer. Buffett changed his mind, adapted, and profited immensely from the decision. Buffett is still invested in companies like Coca-Cola, See’s Candies, and Geico to name a few.
Looking for value within the intangibles of a company is not easy. It’s hard to measure, hard to predict, and requires long deep thinking.
But it certainly pays.