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V is for Value Investing – The Elite Investor Club’s A – Z Guide of Investing


Unless you’ve been living in a cave for the last decade you’ll know that central banks have been interfering in the markets for almost a decade now. And that creates a problem for old fashioned investors looking for today’s topic. In the A-Z of investing, V is for Value Investing. It’s a sign of the sorry state the world is now in that Value Investing even exists as a topic in its own right. Shouldn’t all investing be based on achieving value? Buy low, sell high, right? Well, in today’s world you might find some difficulty in finding things worth buying. There’ve been two major impacts of the central bank interventions since two thousand and eight. The first is ‘emergency’ interest rates at four hundred year lows that have been kept in place for almost a decade despite evidence that economies are recovering, certainly in America and the UK. The second is money printing on a biblical scale through quantative easing. The result of all this easy credit and massive liquidity injection? Bubbles in asset prices for pretty much everything. Stocks and shares in a bubble – yes until the latest China induced corrections. Bonds in a bubble? Yes and every day must draw us closer to the pin prick that bursts the bond balloon. What about high end property? Yes, though definitely on a downward trend now in prime London postcodes. Then there’s collectables like classic cars and works of art. Most auctions regularly produce record prices as high net worth investors look for tangible assets to buy with their almost free money. And that’s the key issue in my opinion. We seem to have forgotten that money is a commodity that has a price – the interest rate. With money virtually free, its savers that suffer from what Tim Price calls financial repression. Tim is one of many movers and shakers of the investment world that I interviewed for my latest book, Encounters with Investment Icons. Here’s a brief extract to give you a flavour: “what you now have is this sort of Alice through the Looking Glass world in which the supposed risk-free rate is now not giving you any yield at all. So the yield on government bonds in G7 markets is now basically zero to a greater or lesser extent, in real terms its pretty much zero. You’re getting a risk without any return, but as far as the regulator is concerned these are the only assets that pension funds should own, this is a gigantic catastrophe in the making I think.” Tim’s a modern day disciple of the grandaddy of value investing, Benjamin Graham. Graham’s seminal work, Security Analysis, dates back to nineteen thirty four. In essence value investing is looking for stocks and shares that are trading at a price lower than their intrinsic value, that is all the future distributions it will make to shareholders. There are lots of ratios to look at such as price to earnings, price to book value, dividend yield and so on. The most famous of all value investors is Warren Buffet who defines it quite simply as finding an outstanding company at a sensible price. In Buffet’s case he looks for companies with a strong brand that brings pricing power but with some potential value not recognised in the current share price. His recent acquisition in the out-of-favour American railroad sector was at least partly driven by the trackside land he also acquired and the cable network that runs alongside the rail network. Tim Price is currently seeing value in Japanese stocks rather than anything in the West, but is particularly concerned about the bubble in the bonds market where we are being asked to commit our cash and take a risk for a zero or even a negative return. If you want to be a value investor, you’re going to spend a lot of time filtering through hundreds of stocks with some fundamental analysis techniques to try and find something that represents fair value. Alternatively, you could leave all the work the experts and just invest in their funds. If you want to buy a single share in Warren Buffet’s Berkshire Hathaway company it’ll set you back a hundred and ninety nine thousand dollars at the time we record this. Thankfully Tim Price has decided to put his own money where his mouth is and has launched his own much more accessible value investing fund. In my opinion you can’t call yourself a serious investor unless you’ve at least studied the principles of value investing. If you still want to pay two hundred times earnings for the flavour of the month tech stock afterwards, at least you’ll understand why I think you’re crazy!