A “Greatest Hits” collection of investing insight from Value Investor Insight TOPICS INCLUDE:
03 Finding an Edge
23 Portfolio Management
“Efficient” Markets Concept of Time
Active Management Buying and Selling Concentrate or Diversify? Managing Risk Going to Cash The Short Side Activism
05 Field of Play Circle of Competence Does Size Matter? Sector Insight Going Abroad
33 Learning Curve
11 Uncovering Value Where the Values Are Idea Generation
37 Of Sound Mind 40 The Craft of Investing
15 Research and Analysis The Research Process Analytical Rigor Management Education Defining Value
The Big Picture Investor as Manager Finding Motivation
While we certainly believe there are core principles upon which sound investments are made, it’s equally clear that, like snowflakes, no two investing strategies are exactly alike. Equally talented and accomplished investors can view the same investment opportunity in precisely opposite ways. That’s a central reason we launched Value Investor Insight four years ago (and SuperInvestor Insight two years ago), to help inform the ongoing development of our readers’ own unique investment strategies with the experience, wisdom and ideas of a wide variety of superior investors. The differences in strategy and style among value investors are many: Some invest primarily in small-cap stocks while others stick to large-caps; some invest overseas while others stick to U.S. markets; some run concentrated portfolios while others are more diversified; some are activists while others never are; some are long only while others actively short. The list goes on. At the same time, there are several fundamental characteristics that value Winter 2008
investors tend to share as well. We’ve identified an even dozen:
» They focus more on analyzing and under-
» They tend to buy what’s out of favor rather than what’s popular.
» They focus on intrinsic company value
» » » » »
and buy only when there is a substantial margin of safety, rather than trying to guess where the herd will go next. They understand and profit from reversion to the mean rather than projecting the recent past indefinitely into the future. They understand that beating the market requires a portfolio that looks different from the market. They focus on absolute returns, rather than outperforming a benchmark, and on avoiding permanent losses. They typically invest with a multi-year time horizon rather than focusing on the month or quarter ahead. They pride themselves on in-depth and proprietary analysis in search of “variant perceptions,” rather than acting on tips or relying on Wall Street analysts. They spend far more time reading things like business publications and financial reports than watching the ticker or television shows about the market. www.valueinvestorinsight.com
standing micro factors, such as a company’s margins and future growth prospects, and less on trying to predict the direction of interest rates, commodity prices or the overall economy. They cast a wide net, seeking mispriced securities across industries and types and sizes of companies rather than accepting artificial limitations on market capitalization or other criteria. They make their own decisions and are willing to be held accountable for them, not seeking safety in what everyone else is buying or decision-making by committee. They admit their mistakes and seek constantly to learn from them.
It’s in this spirit of continuous learning that we offer this collection of wisdom from the pages of each of the 46 issues of Value Investor Insight, celebrating both the similarities and differences in how the best investors apply their craft.
John Heins Co-Editor-in-Chief
Whitney Tilson Co-Editor-in-Chief Value Investor Insight 2
Greatest Hits” collection of investing insight from Value Investor Insight