Global Value Investing

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A multifaceted approach to value investing with stock valuation based on intrinsic value estimated from cash returns, appraised value of assets, and other facets of value.

 

 

Introduction

 

Global value investing with stock valuation presents intrinsic value estimated from valuation models based on discounted expected cash returns, appraised asset value, and other facets of company value as a going concern and a resource converter. The first principles of value investing are universal and timeless. These principles are global in the sense that they are practiced the same everywhere. Value investors around the globe may well invest in their home country only or on world exchanges in other countries pursuant to a long-term investment approach.

This classic investment approach was codified by John Burr Williams, popularized by Benjamin Graham, qualified by Philip Fisher, and championed by Warren Buffett. Investors are encouraged to think for themselves and not become Williams wannabes, Graham groupies, Fisher fanatics or Buffet believers. These four provided many if not most of the principles and practices of what has come to be known as intrinsic value investing as defined in our statement of intent.

The objective of value investing is long-term total return on equity subject to protecting the original capital. The life cycle of investing can be expressed in four over-lapping stages: accumulation (lifetime earnings), preservation (prudent investments), delayed consumption (retirement expenditures), and distribution (gifts and bequeaths). The focus is on the preservation of the purchasing power of the original capital and its appreciation in value. For orientation, visit the four links in the following boxes.

 

4 Steps of Investing

4 Steps of Selection

 

Price is not Value

Screening is not Valuation

Global value investing with stock valuation is implemented with a Four-Step Common Stock Investment Program, which provides the framework for a Four-Step Common Stock Selection Process. Both are based on the premise that price is not value which means that screening is not valuation.

 

Equity research analysts employ various methodologies, including fundamental, technical and quantitative approaches. The basis of fundamental analysis, which applies to any investment asset and especially to market-traded common stock equity,  is discounted cash flow (DCF) techniques based on financial analysis of individual company reports including the income account, balance sheets and funds flow statement. The basis of technical analysis is curve-fitting for chart reading, trends, momentum, and market timing in general. Technical analysis, which can be applied to any market-traded security with a time series of historic prices, focuses on market price and ignores the concept of value. The basis of quantitative analysis is econometric models of large data samples to estimate average results in either cross-section across the same trading interval or in time series over a large number of trading intervals. Quantitative analysis assumes that price equals value in an efficient market.  

Story Highlights Overview

The concept of "value investing" is highly ambiguous. The concept of "intrinsic value investing" is also ambiguous, but less so. Misleading interpretations of the meaning of value investing can be avoided by close reading. A sense of humor is helpful. Yet serious visitors will not expect to be either entertained or flattered -- two devices that are sometimes used to distract investors. A survey of available resources clearly indicates that an investment story different than Wall Street's story and Academe's story needs to be told. This is a story for Main Street.

At the heart of intrinsic value investing is investment valuation grounded in the concept of intrinsic economic value based on estimated discounted cash flow from expected dividends or free cash flow to common equity and selling price. The value of all assets must confront the law of economics sooner or later. This law dictates that the value of any asset must be determined by the future cash returns paid to the owner of the asset.

Investment in privately-owned companies with common stocks traded in publicly-regulated markets can be analyzed in various ways. Two major approaches depend on a basic premise about market rationality and efficiency in processing information related to pricing. The "technical" analysis or charting approach either assumes stock prices equal true values at all times or assumes stock prices do not equal true values at all times but that future prices can be divined without regard to value. It is based on patterns discerned in data generated by the market. Technical analysis is used in an attempt to prophesy the timing of turns between bull and bear markets.

A radically different approach to making decisions to buy, hold and sell common stocks is "fundamental" analysis. This approach takes as given that stock prices do not always equal true value because the stock market is observed to be irrational and thus inefficient. Stock selection is based primarily on external accounting data reported by the evaluated company and its competitors. The emphasis is on either value or growth, a significant difference. Whereas value investing is a method of appraisal that focuses on measures of intrinsic value, growth investing is a method of anticipation that focuses on forecasts of earnings growth for the sake of growth.

The materials presented here are designed to explain value investing in as little or as much depth as desired. Whether novices or adepts at investing, readers may either gloss over the surface or delve to the foundations of first principles and discover the traps and pitfalls that await the unwary. Facts conquer fiction. Dig deep for facts, dig deeper for value.

Highlights

At global value investing, the seemingly quixotic mission is to benefit people around the world by explaining how to determine the value of any investment, and more particularly, an investment in the common stock of any particular company with its shares traded in a public market. Investors who choose a long time horizon for their investments and who heed investment value can be referred to as rational long-term investors. By pursing their individual investment goals, these persons indirectly contribute to societal well-being in all nations. Their investment decisions help to stabilize capital markets and increase their efficiency, thus raising global standards of living and thereby improving the quality of life for everyone, whether or not direct market participants.

At global value investing, you are invited to share this vision based on broad ecological and economic principles for Spaceship Earth that transcend the traditional neo-classical model of the efficient allocation of scarce resources using market-generated product prices that do not capture all external costs. Ultimately, economic value is determined by human values, freely chosen by individuals in consensus. Applied well, economic thinking can make the world a better place. "Science," said Adam Smith, "is the great antidote to the poison of enthusiasm and superstition."

At global value investing, you will find comprehensive information for investors at all levels from the novice to the adept. This is a practical guide that provides knowledge and expertise for investors to make better-informed, more-rational investment decisions. This complements the information and data provided by others. The key to successful value investing is exhaustive knowledgeable research of available facts. It is neither necessary nor possible to be omniscient or to achieve extreme accuracy. Rather, it is adequate to judge whether the independent value of a company to a private owner is above its market price by a margin safe enough to justify buying it.

At global value investing, value investors differ from market participants who choose other investment approaches or seek other objectives. They seek to develop personal mastery. They do not follow "groupthink", yet are neither intentionally contrarians nor merely bargain hunters. Success in the art of intelligent investing calls for self-discipline, independent critical thinking, thoroughness, steadfastness, patience, perseverance, and courage of convictions.

At global value investing, investors will find opportunities for channel disintermediation to go around the middleman including financial experts, investment gurus and market pundits. An investor may be either unable or unwilling to commit the time, effort, and resources needed for valuation of stocks. He or she may be neither familiar with economic theory nor financially fluent, knowing the language of accounting and being able to interpret financial statements. Nevertheless, knowledge of value investing principles can be used to judge the merits of investment managers who represent that they are value investors. Instead of picking stocks, a value investor or a trusted advisor can pick stock pickers.

At global value investing, by using the navigation links at the top of the major pages, you will find explained the differences between investing and speculating and between stock screening and stock valuation. Investment valuation is the heart of value investing. Also explained is the crucial difference between price and value which is discussed in depth to fully understand its meaning. The margin of safety, the central concept of value investing, can serve as an antidote to fads. The biggest financial fads are based on fallacious anomalies of the academic capital asset pricing model. The glossary contains definitions of terms used here and keywords for wider searches. Highly ambiguous terms of particular importance to understand clearly are "value", "intrinsic value", "value investing" and "valuation." These and other vague, confusing, and tricky terms are disambiguated. The books contain citations of referenced books, articles, and other resources as well as selected investment links, book search service and bookstore. See new original highly revealing book reviews and download papers and abstracts of ground-breaking scholarly research by the author. Be sure to read the legal stuff about privacy policy and terms of use.

At global value investing, you will find a community of interests where like-minded investors can share ideas and information. Frequently asked questions and their answers appear in FAQs. Participate in the Intrinsic Value Forum discussion with others.

Overview

The multilingual review and descriptive table-of-contents style Site Map with links to more than fifty pages are provided for browsing so that you do not miss anything at the global value investing web site, such as Quotes of timeless wit and timely prices and the free online DCF Valuator discounted cash flow (DCF) investment valuation models with easy-to-use interactive interface and graphical presentation of results. The common stock values are based on economic intrinsic value estimated with discounted cash returns from expected dividends or free cash flow to equity, using either deterministic scenarios or Monte Carlo simulation. The free Insighter newsletter focuses on stock valuation. You may look for something specific in the pages at this web site by using the Search Site tool. If you have questions or comments, Contact Us using our form email or direct email address.

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