Value Investing Principles

Howard Marks and his firm manage over $200 billion I’ve studied almost all his writing and compiled his top 10 lessons as an investor: 1. Risk Management Over Risk Avoidance: Marks emphasizes that investing isn’t about dodging risk entirely (since that limits returns). Investing is more about understanding and controlling risk. He sees risk as the probability of permanent loss, not just volatility, and believes high-quality assets can be risky if overpriced, while low-quality ones can be safe if bought cheaply. 2. Mastering Market Cycles: Markets move in cycles, driven by human behavior, not linear trends. Mark stresses identifying where we are in the cycle: greed-driven highs or fear-driven lows, to make smarter decisions, rather than predicting exact timings. Success comes from being cautious when others are reckless and bold when others panic. 3. Contrarian Thinking: To outperform, Marks advocates going against the crowd. He believes the best opportunities lie in undervalued or overlooked assets, requiring patience and conviction to buy when pessimism peaks and sell when optimism inflates prices beyond value. 4. Price Matters More Than Quality: A great company isn’t a great investment if its price is too high. Marks insists that value - paying less than an asset’s intrinsic worth -creates a margin of safety, reducing downside risk and boosting potential returns. 5. Psychological Discipline: The biggest investing mistakes stem from emotions, not data. Marks urges investors to stay rational, resisting greed in booms and fear in busts, as herd mentality often distorts judgment. 6. Embrace Uncertainty: No one can predict the future with certainty, so Marks promotes "intellectual humility." Investors should focus on what they can control: research, emotional discipline, and strategic positioning, rather than chasing forecasts. 7. Second-Level Thinking: Beyond obvious first-level analysis (e.g., "this stock is cheap"), Marks pushes for deeper reasoning. Considering what others think and how their actions might affect outcomes. This complexity separates average from exceptional results. 8. Patience Pays: Quick wins are rare; lasting success comes from holding investments through volatility, letting value compound over time. Marks uses the adage: "Don’t just do something; sit there." 9. Balance Winners and Losers: Marks likens investing to tennis - amateurs win by minimizing errors (losses), while pros win with aggressive shots (big gains). Most investors should aim for consistency, avoiding catastrophic losses, rather than swinging for home runs. 10. Learn from Experience: Markets are a classroom, teaching lessons daily. Marks credits his edge to observing patterns - like bubbles forming when risk feels absent - and adapting, a skill honed over 40+ years.

12 timeless lessons from Warren Buffett's favorite investing book: Securities Analysis by Ben Graham 1. Investing versus speculating Investors make decisions based on the facts and value of the asset. Speculators make decisions based on other participants' behaviors. Know the difference. 2. Good business vs. bad business Graham defines in simple terms what makes a business "good". The inverse of these conditions makes it "bad." Investors should focus on buying good businesses. 3: Left brain + right brain thinking The numbers are essential, but Graham believed good analysis must include qualitative factors, too. 4: "Intrinsic value" is a moving target. The value of a business changes over time. It's not a fixed number. Investors must understand that value of a business is dynamic and subject to change. 5: Focus on earnings power The bigger the fluctuations in a company's earnings, the less reliable your valuation analysis will be. Focus on companies with predictable futures. 6: History > the latest earnings report. Rather than emphasizing the recent results, Graham averaged the companies' history. Look further back at a company's operating results before you conclude. 7: You CAN still value growth companies Even though they are much harder to value, they can be good investments so long as the purchase price is low enough. 8: Don't use a specific number for valuation Graham warned against calculating a precise number to value a business. He vastly preferred to use a range instead of a fixed number. Today, we call this sensitivity analysis. 9: Mean reversion is real All companies eventually mean revert (though some can resist it for much longer than expected). Graham warned against buying a stock just because the industry is in an uptrend. The underlying economics might be poor. 10: Change is not something to profit from, but guard against. This is a core principle that Buffett has put into practice for decades. Think like a private business owner: How much money must I put up? How much cash will I get back? How fast? "Why should investors in publicly traded stocks ask different questions?" 12: Focus on dividends & income, not the future price. Don't just count on capital appreciation. Focus on income & dividend potential first and capital appreciation as a bonus. This shift will cause you to think like an owner. The whole book is packed with timeless wisdom. However, it's long (725 pages) and dense. Still, it's a classic. It's no wonder why Buffett considers it essential reading. If you invest, you MUST understand valuation. Want to level up your skills? Join me TOMORROW for a FREE webinar about valuation. Topics: - History of Value Investing -Valuation Mindset Spectrum -4 Valuation Methods Register here (it's free): https://lu.ma/6dvg3qo6 If you enjoyed this post, follow me Brian Feroldi. I demystify the stock market with daily tweets and a few threads like this each week.

Imagine walking into a store, spotting a premium product at a deep discount, and realizing you’ve just found a steal. Instant satisfaction, right? That’s how value investors feel when they discover an undervalued stock. Popularized by Benjamin Graham and Warren Buffett, value investing is all about identifying stocks that are trading for less than their intrinsic value. Over decades, value investing has outperformed many high-growth strategies, often with lower downside risk: Warren Buffett’s Berkshire Hathaway delivered a CAGR of ~20% for over 50 years, turning small investments into fortunes. A study by Fama & French showed that value stocks outperform growth stocks over long horizons in global markets. Even Indian markets have rewarded value pickers — companies like ITC, CESC, and Godrej Industries once traded well below their intrinsic value before delivering multi-fold returns. Inspired by classic value investing principles, I ran a custom query on Screener with filters like: PE < 15, PB < 1.5, ROE > 10%, ROCE > 15%, low debt, high current ratio, and positive cash flow. And yes results were surprising, solid sales growth, positive cash flows, stable earnings yet undervalued. Value Investing isn't about quick wins it's about long term compounding. What do you think about it? #valueinvesting #investmentstrategies #stockpicking #screener #warrenbuffet

Value investing is not about chasing low prices. It's about finding true value but what does that mean? Joe Virion, CFP® from Avantis Investors reminded me recently... True value comes from lower prices with strong fundamentals and profitability. Think of value like dining at a great restaurant You don’t pick the cheapest place You want good food AND a fair price Investing works the same way! A cheap stock isn’t always a good deal. Sometimes, low prices mean the company has weak finances. Look for companies with: →solid cash flow →healthy balance sheets →undervalued by the market These are the businesses offering the best long-term potential! Investing in true value companies can lead to higher returns over time compared to chasing cheap stocks with poor fundamentals. Check out the chart below. It shows that historically speaking by combing a high book-to-market (aka low price) with high profitability, You get enhanced returns that you don't see for a high book-to-market with low profitability. Remember: All value investing is not the same! Also it's not always exciting to invest in value, especially as the large growth names continue to dominate. But buying good companies at low prices and being patient, is how the best long term investors in the world do it. **This post is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Please consult a financial professional about your personal situation before making any investment decisions.**