What is a value investor.

Hi everyone,

I was just wondering what your definition of a value investor is and would you consider yourself one by your own definition.

Thank you!

Cheers

David.

A Story Selling Gum Told By A Value Investor

A number of years ago I was trying to explain to my son what I did for a living. He is 11 years old. I spoke about selling gum.

Jason, a boy in my son’s class, sold gum each day at school. He would buy a pack of gum for 25 cents and he would sell 5 sticks of gum for 25 cents each or $1.25 in total revenue for each pack he sells.

He sells 4 packs a day, 5 days a week, and 36 weeks in the school year or about $720 a year in pure profits. If he has 6 years until he graduates, that is about $4,320 in total profits he would make by the end of high school.

What if Jason offered to sell you half the business today? What would you pay?

My son replied, ―Well, he may only sell three packs a day so he would make $3000 a year. Would you pay $1,500 now? Why would I do that if I have to wait several years for the $1,500?

Would you pay a $1? Yes, of course! But not $1,500. I would pay $450 now to collect $1,500 over the next few years, which would be fair.

Now, you understand what I do for a living, I told my son.

I sit around trying to figure out what businesses are worth, and then I try to pay a lot less for them. I think you get the point.

(23-06-2013, 10:18 AM)davidsim Wrote: Hi everyone,

I was just wondering what your definition of a value investor is and would you consider yourself one by your own definition.

Thank you!

Cheers

David.

To buy into something because you think it is much cheaper that its value.

To NOT buy into something because the graph shows an upward momentum or because your friend, hairstylist, parents, taxi driver recommended it

In essence, the work of a value investor can be summed up in a sentence below:

Trying to buy something worth $1 using 80 cents or less.
Cheers!

(23-06-2013, 11:12 AM)level13 Wrote: In essence, the work of a value investor can be summed up in a sentence below:

Trying to buy something worth $1 using 80 cents or less.
Cheers!

I thought it was buying something worth $1 using 50cents or less hahaha....

I guess depends on the business
if its a very good business, i don't mind paying close to its fair value ^^

I find trying to establish what's fair value extremely difficult.
I find judging if a business is a very good business extremely difficult.
I find judging if management is good extremely difficult.

I am no good at all of the above, so I am still in the stunted growth stage for someone in a value investing journey.
Value to me is when the market price fails to reflect substantially the realisable net assets (generally). I do liquidation analysis.

The larger the gap, the greater the margin of safety.
Cigar-butt hunting.

Admittedly what's value to you may not be value to others, it's a self discovery of your personality.

Just wondering, are there any bluechip/big name companies that are considered a value investment?

Most bluechips seem to have high debt-equity ratios, high p/e, and is trading a few times above book value (high p/b).
They are also usually net debt and have negative FCF.

Does that mean we should stay away from bluechips? And they are only worth buying during a recession or a significant correction?

(23-06-2013, 07:27 PM)TheMillennium Wrote: Just wondering, are there any bluechip/big name companies that are considered a value investment?

Most bluechips seem to have high debt-equity ratios, high p/e, and is trading a few times above book value (high p/b).
They are also usually net debt and have negative FCF.

Does that mean we should stay away from bluechips? And they are only worth buying during a recession or a significant correction?

As big caps are largely followed by many analysts, there is usually hardly any undiscovered value left.

You are right, we should stay away from them most of the time.

(23-06-2013, 10:25 AM)felixleong Wrote: A Story Selling Gum Told By A Value Investor

A number of years ago I was trying to explain to my son what I did for a living. He is 11 years old. I spoke about selling gum.

Jason, a boy in my son’s class, sold gum each day at school. He would buy a pack of gum for 25 cents and he would sell 5 sticks of gum for 25 cents each or $1.25 in total revenue for each pack he sells.

He sells 4 packs a day, 5 days a week, and 36 weeks in the school year or about $720 a year in pure profits. If he has 6 years until he graduates, that is about $4,320 in total profits he would make by the end of high school.

What if Jason offered to sell you half the business today? What would you pay?

My son replied, ―Well, he may only sell three packs a day so he would make $3000 a year. Would you pay $1,500 now? Why would I do that if I have to wait several years for the $1,500?

Would you pay a $1? Yes, of course! But not $1,500. I would pay $450 now to collect $1,500 over the next few years, which would be fair.

Now, you understand what I do for a living, I told my son.

I sit around trying to figure out what businesses are worth, and then I try to pay a lot less for them. I think you get the point.

Hi,

The story lacks the part where they discussed whether Jason will be able to continue to sell gums if competition comes in and Ben replies that Jason is a superhero and will be able to sell gums with success still. This is another part of value investing and that is to apprise if a business has a great moat which will sustain it