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Value Investing: A Global Perspective. Abdulaziz A. Alnaim, CFA President & Fund Manager Mayar Capital Management. Value investing: a global perspective. Abdulaziz A. Alnaim, CFA. Contents. History Value Investing 101 Academic Studies Value Investing Today. History of Value Investing. - PowerPoint PPT Presentation
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Value Investing:A Global Perspective
Abdulaziz A. Alnaim, CFAPresident & Fund ManagerMayar Capital Management
VALUE INVESTING:A GLOBAL PERSPECTIVEAbdulaziz A. Alnaim, CFA
Contents
History Value Investing 101 Academic Studies Value Investing Today
4
History of Value InvestingThe principles behind value investing were first codified by Benjamin Graham and David Dodd in their 1934 book, Security Analysis
Graham later expanded on that by publishing The Intelligent Investor (1949)
5
History of Value Investing
Graham taught value investing at Columbia University for 28 years.
Many of his students, such as Warren Buffett and Walter Schloss, went on to apply his investing principles very successfully over many decades
Value Investing 101
“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”
-- Benjamin Graham
8
Value Investing 101
Invest in a security only if it is trading significantly below conservative estimate of its intrinsic value.
This is called the Margin of Safety principle
Intrinsic
ValueMarketPrice
Marginof Safety
The most important principle shared by all value investors
9
Value Investing 101
The Margin of Safety serves two purposes:
1. Provides a good cushion should the investor make an error in the estimate of the security’s intrinsic value or some unexpected event changes it
2. Provide excess return as valuation normalizes (from cheap to fair value)
10
Shopping for Bargains
Value Investing =Trying to buy $1 bills for $0.50
11
last year’s fashion
Shopping for Bargains
When shopping for clothes, we can find such “bargains” at outlet malls
50%
Overlookedmerchandi
se
“Slightly” damaged
goodsPureJunk
… Unfortunately, no outlet malls exist for securities
30% 70%
50%
12
Shopping for Bargains
“Be fearful when others are greedy. Be greedy when others are fearful.”
-Warren Buffett
“The investor’s chief problem and even his worst enemy is likely to be himself.”
- Benjamin Graham
13
Shopping for Bargains
Where do we find real bargains? General market decline Whole industry going out of
favor Under-followed companies (not on
the radar of institutional investors - e.g. small companies)
Temporary negative event
Video: Value Investing: Buy Cheap Obscure and Out of Fashion
15
Value Investing Works
Benjamin GrahamWalter SchlossWarren BuffettCharlie Munger John TempletonMax HeineMichael Price
Martin WhitmanBruce BerkowitzDavid EinhornJoel GreenblattBruce GreenwaldSeth Klarman
Many of history’s greatest investors were value investors:
They out-performed the market over decades by applying the value investing strategy
Value Investing Works
Source: Value Investing Retrospective, A Heilbrunn Center for Graham & Dodd Investing Research Project conducted by Andrew Dubinsky
Early Studies: One-Dimensional Description of Value • Basu (1977)• Rosenberg, Reid, Lanstein (1985 )
Second Generation: Multi-Dimensional Description of Value • Fama & French (1992)• Basu (1983)• Lakonishok, Shleifer, Vishny (1994 )
Fama & French 3 Factor Model Successes • High Minus Low (HML) factor (1993)• Multi-factor success with LSV portfolios (1995)
Value Investing Works
Source: Value Investing Retrospective, A Heilbrunn Center for Graham & Dodd Investing Research Project conducted by Andrew Dubinsky
In Works in Japan•Lakonishok, Hamao, Chan, "Fundamentals and Stock Returns in Japan", 1991
It works in US, Japan, UK, France, Germany, Italy, Netherlands, Belgium, Switzerland, Sweden, Australia, Hong Kong, Singapore• Fama & French, "Value versus Growth the International Evidence", 1998.
… and tens of other studies over the years
Value Investing WorksCountry Return
High B/MReturn
Low B/MSpread Cumulative
20 yearsUnited States 14.55% 7.75% 6.79% 272%Japan 16.91% 7.06% 9.85% 555%United Kingdom 17.87% 13.25% 4.62% 147%
France 17.1% 9.46% 7.64% 336%Germany 12.77% 10.01% 2.75% 72%Sweden 20.61% 12.59% 8.02% 368%Australia 17.62% 5.3% 12.32% 921%Hong Kong 26.51% 19.35% 7.16% 299%Singapore 21.63% 11.96% 9.67% 534%
Sample period: 1/1975-12/1995Fama, E. and French, K., “Value versus Growth the International Evidence” (1998).
Value Investing Today
Difference in Methods
Redefine elements of Intrinsic Value (starting with Buffett): franchise value, intangibles, growth
Simple “statistical” doesn’t work like it used to
20
Elements of ValueU
ncer
tain
ty
Asset Value
Growth
Earnings
Power
Stronger Franchise (“moat”)
Asset Value
Earnings
Power
Asset Value
Source: Greenwald, Bruce, et al (2004). Value Investing: From Graham to Buffett and Beyond. Wiley.
newer elements of value
Value Investing Today
More Global
Bigger universe, more areas to find hidden value
Business is more global competition may come from the other side of the world
Value Investing Today
More Global
Value Investing spread to Europe and more recently to Asia and MENA
Seeing more funds with “value” in their name or description, especially in the hedge fund space
Value investors are still a rare breed in MENA (and elsewhere)
Value Investing Today
Being in New York or London used to have its advantages--and it’s disadvantages.Many great value investors preferred being away from the crowd
Warren Buffett – OmahaJohn Templeton – BahamasCharlie Munger – Los AngelesBruce Berkowitz – Miami
Value Investing Today
History proves that Value Investing gets into and out-of fashion every few yearsI expect to see more of it (and other style-specific investing) in our region going forward
Thank You
