Value Investing

‘Intelligent Investor' is one of the oldest books written on Value Investing. Penned by Benjamin Graham , recent editions carry foreword of Buffett. Graham , father of value investing, lived in the post-depression US. He has suggested rigorous valuation procedures for buying the stocks in his book. It includes analysing earnings of companies for 10 years for earnings growth and the price should not be greater than 15 times three years average earning. The price you pay should not be greater than 1.5 times the book value etc. Buffett , who was mentored by Graham moved away from such valuation techniques. Buffett emphasized on the quality of the company rather than having strict quantitative measures .He says that it is better to invest in wonderful companies at fair price rather than investing in fair companies at wonderful prices. The price you pay is still very important. But it’s not the important factor. Charlie Munger, another pillar of Berkshire Hathaway, doesn’t mince words. He says Graham approach only suits for depressed world he lived in. He says Graham as an investor had to learn a lot. Graham's concept of Margin of Safety is still relevant. Like constructing a bridge that has strength to withstand load multiple times the expected actual load , we need to buy the companies at a price that are significantly less than future (discounted) earnings .This will provide the margin of safety when the expectation/earnings changes over time. What make companies great? What kind of companies act as cash cows for investors? Has Buffett answered that?

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