Value Investing on the ASX

Hi Invested,

Can anyone recommend any books written by Australian authors on the 'value investing' approach to the sharemarket used by eg. Buffet, Munger...?

Most of the books I see in the bookshops are written by American authors, and most of the Australian ones are focussed on trading/technical analysis.

Any comments appreciated.

GSJ

 

http://www.leithner.com.au/book/Leithner Book Order Form.pdf

By Dr Chris Leithner

Cheers
N.

 

I bought this book by Dr Chris Leithner and it was a good read. He also takes a savage swipe at politicians in general; for this reason alone, I recommend it

Steve.

 

I can also recommend visiting the Intelligent Investors website: Investment Shares - Australian share market advice - The Intelligent Investor

Click on the Free Access to Investor's college area to access the wealth of information there.

Steve

 

The Leithner Value Fund has done 4% since 2004

Officium Capital - Performance Summary

Hope the book is better than his own picking..

 

"The Leithner Value Fund has done 4% since 2004"

I would like to know how he could achieve only 4% in such a bullish market.
He MUST be a very talented man...
Reading his book may be a waste of time.

 

Find "A Wonderful Company at a Fair Price" by Brian McNiven or his newer one called "Market wise" - though the new one doesn't seem to be available in the shops yet. Excellent books on Buffetts methodologies with an Aussie focus.

As for value - well there aint much of that on the ASX at the moment...... however as W.B. says "its better to buy a wonderful company at a fair price than a fair company at a wonderful price".

Jason.

 

The simple approach to investing in the sharemarket

Hi everyone,

Will check out the books/links mentioned.

The 4% pa return on Leithner's fund isn't very impressive though?!

I must admit, allthough I am have very little experience with the sharemarket, the 'value investing' approach is very appealing to me.

The book I am currently reading by Mark Wylie, describes how the focus here is on selecting a good business, not a share. This means you do not need to worry much about share price movements, or rely on 'expert' brokers or newsletters for information, don't have to read newspapers or rely on 'hot tips' from random people or on internet forums, don't have to look at confusing charts and graphs or spend $10k on blackbox technical analysis programs etc., etc....

This seems a far simpler, more common sense, logical approach to investing in shares.

Why isn't everyone using it?!

The focus here is on analysing a business and seeing if it is good value, and not being influenced by all the 'short-term' thinking that is common amongst many sharemarket investors, whether they are beginners, brokers, institutional investors or fund managers.

Any 'value investors' here on Invested?

Thanks,

GSJ

 

GSJ wouldnt using both fundamental analysis and technical analysis be better.
You could use fundamental analysis to pick the companies, and technical analysis to time your entry into the market. (this is theory only, I only have mony in funds at the moment)

 

Do you have to be exclusively a "value" investor?

Can't you incorporate tools from both "value investing" and "growth" investing with some tactical asset adjustments based on market cycle and opportunities as they arise, toss in a bit of GARP and even a bit of Tech A when required?

I'd rather reject such labels and say that I'm "beyond style" as an investor. (Yes people may say well looking at your dress sense that's OBVIOUS )

Whilst I certainly don't subscribe to the "I don't even know what the company does" school of Tech Analysis, surely you need to adapt to markets which you're faced with at the time?

For example, I think direct real property can be a GREAT investment...but I haven't bought any for the last few years because most of what I've seen has been overpriced...and the Australian sharemarket has presented such great opportunities...BUT maybe that will change soon ?

A technique that might have worked really well in the past (e.g. buying cheapie CF+ rural properties) may not work now...

I try not to discount any investment strategy that may give me an edge...but equally I think you need to be quite selective in what you do accept.

Just a different spin on things...

Cheers
N

 

Strategies to suit the individual

Thanks voigtstr and Nigel,

Yes, I appreciate that one could use a combination of approaches, but at the same time I believe you must also use strategies that 'fit' or 'suit' your personality, risk and investor profile, and more importantly strategies that you personally can understand and apply without too much difficulty.

I've looked at trading and technical analysis before, and unfortunately no matter which way I look at it, we just don't seem to meet eye to eye!

As a beginner in shares, and being very conservative, I am not too keen on adopting this strategy in any meaningful way. I think I would have a pretty high chance of losing money if I did, and much of my decisions would be based on speculation - almost like gambling! That's not to say that others here can't use trading/TA effectively, it's just not for me.

That's why I would prefer to focus on value investing as a strategy.

Just to clarify, what is the difference between 'value' and 'growth' investing?

Thanks,

GSJ

 

"The focus here is on analysing a business and seeing if it is good value,"

Tell me how you are going to do just that ????
Don't you think that the easiest way is to put your money in the Navra Fund ?
After all SN can deliver much more than pathetic 4% pa.

The 4% pa return on Leithner's fund isn't very impressive though?!

Do not blame him !!. He may be another value investor.

 

Check out our very informative glossary http://www.invested.com.au/71/active-management-1278/
for one description of the difference.

I agree that your investing style must suit your personality and risk tolerance. But the flip side of course is that if a person won't accept a level of risk then they must content themselves with very mediocre returns.

Cheers
N.

 

Hi GSJ.

I basically consider myself to be a value investor (although like Nigel I am willing to look at investments that fall outside the strict definition - but even then I evaluate them with a 'value mindset').

Over the last 20 or so years, I have invested in various ways in the sharemarket (trading, options, long term, short term etc), however, like you, I feel most comfortable with the concept of value investing. I find that it is the best fit for my risk and emotional profile.

Steve

 

Yes I was going to dob Steve in as a self-confessed "value investor" but thought I'd let him pipe up himself...

Steve have you defaulted to that because it's what's brought you the best returns? Or purely because it fits your risk profile the best?

I do agree with Steve that in all things you're ultimately looking for value greater than price...I just think that can be achieved in different ways.

There are many paths to the top of the mountain...some are just harder than others.

But you just can't argue with a track record like Warren and Charlies'...

 

Troppo, you asked - "How do you analyse a business?"

Its simple: You learn the basics about business accounting; you learn to read and understand financial statements; you read the last few years worth to see trends; you read up everything you can on the current management team; you look out for stupid things where the directors are looking out more for themselves than shareholders; you watch out for continual restructuring which is just another name for fixing mistakes made by managment, etc. etc. You learn how to value a business as a whole. If you can't value a business how do you know if you're getting a good price or paying too much.

Yes it is allot of work and you need to be interested in it (in fact, love it!). But, you don't need to do this for every company. Just pick some that that you're interested in and wait for a buying opportunity to appear.


If you're not prepared to do the above, then use managed funds (with low fees ).


Rgds,
Jason.

 

Don't know yet, I haven't read that far into this particular book ! But the author seems to suggest that it is not as complicated as you may think? I will see...

GSJ

 

Sounds about right, once I do a bit more reading on the basics, I will see if I can actually do this.

GSJ

 

As I see things, if you're a "value investor" then you are definitely investing for growth. A value investor buys into a company singularly to make money, which is most possible if a company's share price goes north. A company's dividend policy (eg payout ratio) may have no bearing on a value investor's analysis, except that a value investor will search out companies that have a dividend policy that ensures the most effective use of earnings (retain for growth, pay all out as a dividend, or a bit of both?)

A value investor cares only for the value in a company, which is a combination of underlying asset valuations, return on equity, incremental rates of return - that is, is the company going in the right direction? - plus quality and integrity of management.

The key is that you're picking your stocks based on a company's value, rather than being concerned with ratios (eg P/E) or comparisons with like companies. You are not concerned with the daily, weekly or even monthly price movement... except when you've identified a company that meets your value criteria.

Once you have a valuation - or what you're prepared to pay for a share in that company - you sit and wait for a buying opportunity. Such an opportunity may not arise in that company, so you need to extend analysis over more than one company at any time. A value investor is prepared to say, "I missed that one."

On the other hand, a value investor is very prepared to sell, when the value diminishes or something changes for the worse (eg change in management or company direction).

One more thing: A company valuation is always going to be based in part on forward earnings estimates, which is where two different people - with the same historical data - can come up with widely varying valuations.

And Mr Market can be a bit fickle sometimes.

 

This is the bit I like most about value investing. It just seems so logical and makes sense. For me, this is what selecting a good 'share' is really all about. Once you've found a company of good value, you just wait till the price is right and buy in, then just hold and keep up to date with the progress and developments in the company each year to make sure it is heading in the right direction - and this wouldn't appear to require the use of brokers, newsletters or reading newspapers/internet articles/forums. Much simpler at the end of the day, but the initial analysis may be more in depth.

It's a bit like making a good property purchase, most of the hard yards are done at the start, then once you've bought the property it's just a matter of staying on top of things and maintaining your investment.

There must be a simple and practical way to learn how to do this company analysis?

I'm hoping the books I'm starting to read now will show me a way! As well as any other ideas from the forum of course.

Thanks,

GSJ