Value investing seeks to maximize returns by buying stocks that are undervalued by the market. The underlying assumption is that a given stock has an intrinsic value which can be determined by meticulous analysis and then compared to the actual stock price. If a stock is undervalued, one considers buying it — and selling it later if the market price of the stock climbs to meet its intrinsic value.
At the core of value investing is a commitment to objectivity and rationality, with a heavy dose of humility. Value investors focus on developing a deep understanding of companies based on all the available facts careful research can reveal, and are less concerned with the history of a stock price, public perceptions, or conventional wisdom about the future. In fact, Benjamin Graham used to tell people to “predict the past, not the future” which was his way of saying to base decisions on the facts you know, such as a company’s past earnings record. We can never be sure what the future holds, although it’s a fair bet it will it will hold some surprises.
This is why Benjamin Graham counseled humility, and emphasized the crucial importance of establishing a margin of safety in making buy-or-sell decisions. By the same token, Mr. Graham’s protégé, Warren Buffett, admonishes investors to remember the two main rules in value investing: (1) Don’t lose money; and (2) Don’t forget rule #1. Although every value investor hopes to grow capital, preservation of principle and the careful thinking this requires is the foundation of success.
The Value of Value Investing
Value investing is much more than an established way to make money, although able practitioners will certainly reap financial rewards. In its essence, value investing is a way of looking at things and a set of principles that can guide the practitioner in areas far afield from investments. The value investor is curious, rational, thorough, and patient, taking a long-term view when it comes to reaping profits. At the same time, the mature value investor acknowledges there are things he or she doesn’t know. Indeed, sometimes the most important thing is realizing what you don’t know, and learning to make wise decisions accordingly. All these qualities are as important to a successful life as they are to investing.
Benjamin Graham Value Investing Program Overview: Its Mission and Approach
Our mission is to prepare students to launch successful careers in investing generally and in value investing more specifically. Through four core courses, seven electives, and an intensive Financial Modeling Academy, we teach them the technical tools they need to evaluate investment opportunities, and challenge them to develop the positive behaviors and mindset that will help them flourish in business as well as in their personal lives. Students have the opportunity to study financial history, which focuses on important lessons from financial crises and asset bubbles, as well as the history of capitalism in the American economy and the development of economic institutions in western Europe. In addition, we provide significant industry exposure through guest lectures and internships.
The dual skillset we teach – technical skills and life skills – fall into two “Circles of Six” aptitudes. The first group of six focuses on the practical competencies an adept value investor must develop. These include:
A thorough knowledge of the companies they own
Technical skills to measure a company’s intrinsic value
The understanding to establish a margin of safety in buying stocks
The ability to think like a business owner and to identify stellar leaders who are likely to grow their companies significantly
A commitment to long-term thinking and the stomach to ride out market fluctuations
A contrarian, independent mindset that is confident in its judgments even when they are at odds with conventional wisdom
The second group of six describes the life skills we teach at the Benjamin Graham Program in Value Investing, and they are every bit as important as the more technical ones. They are:
Taking personal responsibility for one’s work product, its quality, timeliness, and accuracy
Working collaboratively as a team towards a common goal, with mutual accountability
Oral and written skills, that is, the effective use of language to convey and convince others of one’s viewpoint
A keen understanding of human nature, accompanied by emotional intelligence and humility.
Value investing – and business in general — requires balancing observation and objectivity with an empathetic understanding of others. It also requires the humility to admit the limits of one’s knowledge.
Prudent business judgment, which flows from the confidence, patience, and perspective built over time
Commitment to community engagement, a desire to be an active contributor to the class (and later, a company), with a “pay it forward” attitude. As ye have been mentored, so shall ye mentor! This is not just the right thing to do, but generally speaking those who do right reap more than they sow in all kinds of ways.
Our concentration provides a terrific springboard into the world of investing, enabling students to connect theory with practice as they learn from our expert Investors in Residence and take advantage of internships at preeminent firms.
My hope is that the value investing principles we teach will prepare students to flourish in their lives as a whole, as well as in their careers. The successful value investor is not only someone who makes money, but a perceptive, outward-looking individual with patience, sound judgment, humility, and many more qualities essential to a life well-lived.