Opinion: Are You a Value Investor?

Tobias CarlisleStudyLeave a Comment

Submitted by Valueaki.

I am an investment banking associate by trade.

I deal with A LOT of private equity firms. They all define themselves as great fundamental value investors that like to back great management teams, etc … As such, it is getting harder to identify true value investors (as defined by Graham) … esp. since Buffett touts investing it great companies at a fair price > a bad company at a great price (he’s not wrong, he’s just confused things)

Even Graham has been misunderstood. In Intelligent Investor, Graham states the best investor is the most ‘business-like.’

This statement of being impartial and un-biased has been confused and read as “the best investors are the ones whose knowledge of the industry rises to that of an operator in said operator’s business” … this confusion, I believe, possibly exists b/c of Buffett’s misunderstood definition of ‘Circle of Competence.’

Believe it or not, in Intelligent Investor, Graham actually recommended minimizing all industry analysis …

But here is the tell sign … and no one really quotes this from The Intelligent Investor:

The future itself can be approached in two different ways, which may be called the way of prediction (or projection) and the way of protection.

Obviously these options are on two opposing sides of the spectrum.

But if you fall hard under the ‘prediction’ side, you start asking too many due diligence questions, get too involved, expose yourself to too many biases to act rationally, probably have high due diligence costs, etc. and will almost always never buy a bargain. You sacrifice value to fulfill your curiosity.

When selling companies as a banker, I often think that I’d greatly help the private equity investor’s investment process if I limit the amount of questions he/she can ask the bankers or management team. If you ask too many questions, you don’t have an investment philosophy that you have internalized…

Food for thought …


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