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Value Investing

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Value Investing

From Graham to Buffett and Beyond


15 min read
10 take-aways
Audio & text

What's inside?

Value investors find the highest values when very careful thinking precedes very careful buying.

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Editorial Rating



  • Applicable


This is a very lucid, practical introduction to the principles of value investing. It is detached, relatively objective considering the authors’ bias in favor of the subject, doesn’t hype or hard-sell and, on the whole, would be a valuable addition to any investor’s bookshelf. If you’re a relative beginner, your shelf will also need to include a dictionary of financial terms - the authors assume you already know the vocabulary. And who is the Graham cited in the title? He is Benjamin Graham, who all but invented security analysis. With coauthor David Dodd, he produced the book Security Analysis in 1934. Later, Graham wrote The Intelligent Investor. Both books are investment classics and have been revised and re-issued. This one may endure, as well, based on its thorough exposition on how to value a company and its instructive profiles of value investing heavyweights. recommendation: strong buy, long term hold.


Why Value Investing Works

Modern investment theory holds that the market is efficient. If that is true, then a stock price already reflects all the available information about a company. And, thus, you can’t beat the market except by chance. Modern investment theory also defines risk as volatility of returns, instead of loss of capital. And, theory dictates, the best approach is to buy a broad cross section, an "index," adjusted for your risk preference. Value investors think the stock market is not quite efficient for many reasons. Although value investing fell out of favor during the recent "New Economy" craze, the popping of that bubble confirmed the value investor’s suspicion of the market’s efficiency.

Many investors make decisions based more on emotion than on a rational analysis of data, as confirmed by new insights on behavioral finance. Moreover, some studies have found that portfolios assembled using variants of value-investing principles - such as low price to earnings ratios - beat the market indices. The market often overvalues or undervalues stocks. Sometimes a firm’s total stock market capitalization (share price multiplied by the number of outstanding...

About the Authors

Bruce C.N. Greenwald is the Robert Heilbrunn Professor of Finance and Asset Management at the Columbia University Graduate School of Business, where Michael van Biema is a member of the finance faculty. Judd Kahn taught history, served in city government and worked as a securities analyst, CFO and management consultant. Paul D. Sonkin is investment manager of the Hummingbird Value Fund. All four authors are members of Morningside Value Investors, LLC, an investment advisory firm.

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