Value investing, defined as buying or selling securities at prices different than their true value, is alive and well. You might not know that by reading headlines in the financial press or witnessing the poor returns of stocks with low multiples of price to earnings or book value per share. But here’s why you don’t need to fret about value investing.
Benjamin Graham was a professor and investor who is widely acknowledged as the father of value investing. The Intelligent Investor, arguably Graham’s best-known book, tells the story of Mr Market, a metaphorical way to explain why prices diverge from values. It also discusses the margin of safety, which impresses the importance of finding large gaps between price and value.
Graham’s most famous student is Warren Buffett, the chairman of Berkshire Hathaway. He has said that Mr Market and the margin of safety have been bedrock principles of his investing philosophy over his lengthy career. Read more…..
Chart of the Day
Piketty, arguably the world’s leading expert on income and wealth inequality, does more than document the growing concentration of income in the hands of a small economic elite. He also makes a powerful case that we’re on the way back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth, in which birth matters more than effort and talent,” wrote Paul Krugman in The New York Times.