The Value Investors E-Book

Ronald Chan

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 344

Veröffentlichungsjahr: 2012

Beschreibung

Investing legend Warren Buffett once said that "success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing." In an attempt to understand exactly what kind of temperament Buffett was talking about, Ronald W. Chan interviewed 12 value-investing legends from around the world, learning how their personal background, culture, and life experiences have shaped their investment mindset and strategy. The Value Investors: Lessons from the World's Top Fund Managers is the result. From 106-year-old Irving Kahn, who worked closely with "father of value investing" Benjamin Graham and remains active today, and 95-year-old Walter Schloss (described by Warren Buffett as the "super-investor from Graham-and-Dodsville"), to the co-founders of Hong Kong-based Value Partners, Cheah Cheng Hye and V-Nee Yeh, and Francisco García Paramés of Spain's Bestinver Asset Management, Chan chose investment luminaries to help him understand the international appeal - and success - of value investing. All of these men became strong advocates of the approach despite considerable age and cultural differences. Chan finds out why. In The Value Investors, readers will also discover how these investors, each of whom has a unique value perspective, have consistently beaten the stock market over the years. Do they share a trait that allows this to happen? Is there a winning temperament that turns the ordinary investor into an extraordinary one? This book answers these questions and more.

Leseprobe

Contents

Foreword

Preface

Chapter 1: Free to Choose in Value Land

Living through the Great Depression

The Meaning of Survival

Net-Nets

Setting the Right Pace

Know Thyself

Chapter 2: Once Upon a Time on Wall Street

Becoming Graham’s Disciple

Preaching Value

A Centenarian Diet

Chapter 3: The Making of a Contrarian

A Modified Graham Approach

The Case for Obscure Securities

Market Reflection

Chapter 4: On the Shoulders of Value Giants

A Valuable Detour

Statistics and Beyond

Setting a Global Standard

The Social Science of Investing

The Market Ahead

Chapter 5: A Journey to the Center of Value

Valley of Tears

The Inefficient Market

The Meaning of Value

The Courage to Say No

Seeking Protection

Chapter 6: The Self-Taught Value Spaniard

On a Solo Value Hunt

Investing Made Simple

Austrian Economics and the Market

A Global Rebalancing

Chapter 7: The Income-Conscious Englishman

A Victorian Mindset

Finding the Right Investment Culture

Trusting Only Tangible Income

The Courage to Keep Going

Chapter 8: The Frequent Value Traveler

Reading between the Minds

Thinking Big and Small

Trouble is Opportunity

Feeling the Market

Chapter 9: The Value-Oriented Businessman

Learning the Numbers

The Art of Contrary Thinking

Targeting Good Businesses in Asia

The Relativity of Valuation

A Value Lifestyle

Chapter 10: Value Investing in the Lost Decade

A Musical Beginning

Breaking the Language Barrier

Learning from the West

The Evolution of SPARX

Building a Westernized Asia

Searching for Value

Chapter 11: Eternal Sunshine of the Value Mind

A Multidisciplinary Path

Seeking a Comfortable Price

Finding a Value Partner

Spotting Value Minds

Becoming a Man of Value

Chapter 12: The Accidental Value Investor

Starting an Investment Hobby Shop

Building a Value Temple

An Industrialized Process

A Value March Forward

Chapter 13: The Making of a Value Investor

A Humble Portfolio Construction

The Art of Valuation

Reading for Ideas

More than Just the Fundamentals

Timing for an Exit

Having the Right Temperament

Acknowledgments

About the Author

Index

Copyright © 2012 by John Wiley & Sons Singapore Pte. Ltd.

Published by John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: [phone], fax: [phone], e-mail: [email protected].

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom.

Other Wiley Editorial Offices

John Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USA

John Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ, United Kingdom

John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario, M9B 6HB, Canada

John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, Australia

Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany

ISBN 978-1-11833929-9 (Cloth)

ISBN 978-1-11833930-5 (ePDF)

ISBN 978-1-11833931-2 (Mobi)

ISBN 978-1-11833932-9 (ePub)

To my wife, Jacinth, who reviewed this manuscript more times than I did

Foreword

Students of investing look for a formula, a way of combining accounting and other information that will produce infallibly good investment results. Even Benjamin Graham, the founder and leading spirit of by far the most successful school of investment practice, spent a good deal of his time looking for such a formula. To this end, students read both technical works and the retrospective testimonies of high-performing investors. In both areas, they are largely disappointed.

The technical approaches have a meager record of success. A few notably good books have been written (for example Joel Greenblatt’s You Can be a Stock Market Genius and Graham and Dodd’s Security Analysis). But reported technical investment approaches rarely, if ever, lead to consistent, high-level returns (if they did they would be adopted by everyone and would become self-defeating).

Investment memoirs generally also disappoint students. They tend to be long on philosophy and short on advice for how to buy particular securities. However, as the works of successful investment practitioners, the memoirs do have much to recommend them. They describe, however non-specifically, investment approaches that worked in practice. And they capture an important aspect of investment success: that it depends more on character than on mathematical or technical ability. This is the consistent message of investment memoirs as a group.

The problem is that each memoir presents a unique perspective on the character traits necessary for investment success. Different authors emphasize different characteristics: patience, coolness in a crisis, wide-ranging curiosity, diligence in pursuit of information, independent thought, broad qualitative as opposed to detailed quantitative understanding, humility, a proper appreciation of risk and uncertainty, a long time horizon, intellectual vigor and balance in analysis, a willingness to live outside the herd, and the ability to maintain a consistently critical perspective. Unfortunately, an investor with all these qualities is a rare bird indeed.

That is why Ronald Chan has done such a valuable service in writing this book. He has put together a set of thorough and rigorous portraits of a comprehensive range of notable value investors in a manageably short number of pages. His descriptions cover multiple generations from Walter Schloss and Irving Kahn to William Browne, multiple geographies from Asia to the United States to Europe and the full gamut of value investing styles. By combining descriptions of investment approaches with investor background, he illuminates the connection between individual character and effective investment practice. Taken as a whole, the book provides each practical value investor with the necessary material to sift through the historical records to find the style that is most appropriate to them.

Ronald Chan’s work is an essential starting point for any nascent value investor and an invaluable reference for experienced investors.

Bruce C. N. Greenwald

Director, Heilbrunn Center for Graham and Dodd Investing

Robert Heilbrunn Professor of Finance and Asset Management

Preface

Try not to become a man of success but rather to become a man of value.

—Albert Einstein

The best advice I have ever received came from my father. When I began searching for a career after finishing college, he advised me to stay away from three potential headaches in business: labor, rent, and inventory.

As any labor-intensive business is likely to lead to office politics, my father advised that I look for a business that requires little manpower. Then, as the high office rents in a world city such as Hong Kong can easily squeeze profits, he said the ideal is to find a business that requires little office space. Finally, as handling any type of inventory requires both manpower and space, an inventory-based business should also be avoided.

Taking his advice to heart and looking for a business that met these three criteria, I found investment management to be a perfect fit. The labor force is my brain, the office need only accommodate a few desks, and the inventory is the investment positions recorded in brokerage accounts.

Although investment management may allow one to avoid the aforementioned headaches, becoming a successful investment manager still involves considerable challenges. It requires extensive knowledge of the financial markets and the ability to react to different market circumstances. It also requires a prudent strategy to achieve sustainable investment returns and a sensible investment philosophy to build the right investment model.

In developing my own investment philosophy, I read the work of Benjamin Graham, became aware of the phenomenal investment success of Warren Buffett, and came to realize that the value investing concept makes perfect sense. As Graham said, a value investment is “one which, upon thorough analysis, promises safety of principal and adequate return.”

It is also difficult to argue with Buffett, who asked: “What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value—in the hope that it can soon be sold for a still-higher price—should be labeled speculation.”

After becoming a value investor myself, I began to explore the different types of investment valuation methods for sizing up businesses and investment opportunities. At first, I thought that the perfect valuation formula was the holy grail of investment success, but I soon came to realize that this is not the case. Instead, it is the right investment mindset, or temperament, that distinguishes the fair-to-good investor from the good-to-great one.

That realization prompted me to try to learn more about the mind-sets and life stories of prominent value investors. However, all I could find were short profiles of these individuals and their investment track records, latest stock picks, and market predictions. Although the world recognizes their success, it seems that we are interested only in their views on the market outlook and their most recent investment performance, rather than who they really are, where they came from, and how they ended up becoming who they are today.

The thesis of this book, then, began to emerge. If I could hear the life stories, and understand the investment mindsets, of the world’s most highly regarded value investors—and learn the details of their upbringing and career history—then perhaps I could begin to see what value means in their eyes. Is value, like beauty, in the eye of the beholder? Why do these individuals, despite age and cultural differences, share an investment philosophy?

Unlike other investment books, this book does not focus on a particular investment ratio or valuation methodology. Instead, it focuses on how life encounters and experiences directly and indirectly affect a person’s investment mind-set and strategy.

To provide cultural diversity and demonstrate the international appeal of the value investing approach, the book features five value investors from North America, four from Asia, and three from Europe. Some have experience of different cultures. Mark Mobius of Templeton Emerging Markets Group, for example, was born in New York but has lived in Asia for more than 40 years. Frenchman Jean-Marie Eveillard moved to New York when he was in his late thirties and has lived there ever since. In many ways, the value mindset of these men has been shaped by their cultural experiences.

This book is not an in-depth analysis of the featured investors’ track records. They have been in the industry long enough to win their peers’ respect, whether due to their personalities and career experience or superior investment returns over the long term. What is of interest to me is how they got to where they are today.

For example, Irving Kahn is 106 years old and has been in the business for more than 84 years. Walter Schloss, who passed away recently at 95 years old, and had been described by Warren Buffett as the “super-investor from Graham-and-Doddsville,” beat the market over 46 years.

Although the men featured in this book all have stellar investment records, they come from different walks of life and understand the notion of value differently.

Cheah Cheng Hye of Value Partners in Hong Kong, for example, worked as a journalist for 15 years before becoming a stock analyst and then a fund manager. Spaniard Francisco Paramés of Bestinver became a fund manager by accident in 1993 and has beaten the Spanish market ever since. His appreciation of value has been entirely self-taught.

Tokyo-based Shuhei Abe of the SPARX Group was once a bottom-up stock picker who could not imagine shorting a stock until he realized that Japan was going through a Depression, better known today as the country’s “Lost Decade.” To survive that decade, he improvised by creating a long-short fund based on the simple realization that if one knows what is underpriced, then one should also know what is overpriced. Abe and SPARX have thrived on the strategy ever since.

In sum, The Value Investors: Lessons from the World’s Top Fund Managers shows that value investing is not a staid and old-fashioned investment strategy, but is dynamic and ever-evolving. Although the individuals featured in this book have different stories to tell, they exhibit similar personality traits. More important, they exhibit similar temperaments.

As Warren Buffett argued, “Success in investing doesn’t correlate with I.Q. once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

Ronald W. Chan

May 2012

CHAPTER 1

Free to Choose in Value Land

Walter Schloss

Walter & Edwin Schloss Associates

What does not destroy me, makes me stronger.

—Friedrich Nietzsche

Walter J. Schloss founded Walter J. Schloss and Associates in 1955. A student of Benjamin Graham, the father of value investing, Schloss had been finding undervalued securities in America since the 1930s. Having served as a securities analyst at the Graham-Newman Partnership in 1946, Schloss started his own fund when Graham decided to retire in 1955. Schloss’s son Edwin joined the fund in the late 1960s, prompting an official name change in 1973 to Walter & Edwin Schloss Associates.

Charging no management fees but taking a 25 percent share of the profits, Schloss started off with $100,000 capital. At one point, the fund grew to roughly $350 million. From 1956 to 2002, it generated a 16 percent compound return annually (roughly 21 percent before profit sharing) versus the 10 percent per annum generated by the Standard & Poor’s (S&P) 500.

Although a difference of 6 percent may not sound like much, the magic of compounding means that over this 46-year period, a $10,000 investment in the S&P 500 would have generated close to $900,000, whereas a Schloss investor would have made close to $11 million on the same investment.