Value investing was first introduced by Benjamin Graham, Professor of Finance at Columbia University who also is the mentor of billionaire investor Warren Buffett. Value investing is the method of finding good quality stocks that are trading at lower value compared to the underlying business value of the company, presenting a bargain opportunity for investors. In simple words, value investors buy quality products when they are on sale.
There are many ways suggested by numerous experts on how you can make money from stock market in the long term. While some use market trends to make investment decisions, other use simple cost averaging strategy, accumulating quality stocks by buying them in small quantities. While all these methods work for most of the investors, value investing is one way of investing that has stood the test of time and has been successfully implemented by many famous investors such as Warren Buffett, John Templeton, Parag Parikh, Rakesh Jhunjhunwala and many others.
One of the best ways of learning value investing is by reading the books written by those who have not only practiced it in their investment strategy, but have also made a fortune out of it. Some of the best books on value investing, that I have read and personally like are mentioned below:
Bruce Greenwald is the professor of Columbia University and Director of Research a First Eagle Fund. Described by the New York Times as “a guru to Wall Street’s gurus,”.In this book Professor Greenwald no only explains the concept using modern approach, he also explained in this book how value investing has evolved since the time of Benjamin Graham and how those theories of value investing can fit in modern market. The book explains the basic concept of value investing with modern examples without the past concepts be forgotten. The book explains the concepts in detailed yet simple manner of applying the investment techniques by using real life examples and explaining how you can learn to do so. The book also profiles eight different value investors and highlight their method of applying valuation concepts.
One of very few books on value investing written from an Indian investors perspective by an Indian author. Parag Parikh was an Indian trader and investor and founder of PPFAS Ltd, an investment advisory firm. He began his investment journey as a broker in BSE in 1979 and became a successful investor.
The book is a must read for every Indian investor looking to make money from Indian stock market. The book goes beyond the concepts of value investing and explains how our sentiments also influence our decision making process which play a vital role in our investing success or failure. The book tells us how most people lose money in the market not because they fail to pick the right stock but because they do not follow the discipline needed to succeed in investing. ?The best part about the book is it also discusses how an investor can spot a market bubble and ways to safeguard oneself from it. I find this book better than other books simply because it is written by a successful Indian investor for Indian stock market.
Christopher Browne was a famous value investor who started his career at the firm Tweedy, Browne a famous brokerage firm among value investors. Since its inception in 1993, Tweedy Brownes global value funds have outperformed the market.
As the title suggests, the book is a short read, suitable for investors who cannot go through a book that expands to hundreds of pages and want a quick but detailed glimpse of value investing. The book gives you a good insight on how to screen stocks based on financial ratios and pick the right one for your portfolio. This book is a little masterpiece of value investing which is more of an art and requires patience and discipline. Despite being so short, it is very simple to understand and is considered one of the best books on value investing after Benjamin Grahams The Intelligent Investor. ?
Mohnish Pabrai is an Indian American investor who manages Pabrai Investment Fund, which is a family of hedge funds inspired from Buffett partnership. Pabrai manages over 500 million dollar of assets through his fund and has successfully achieved above average returns consistently.
The Dhandho Investor is written with individual investor in mind and is a concise version of Warren Buffets principles of investing that have made him a billionaire. The book discusses how an investor can make profitable but safe bets so that when markets move up, the investor makes huge gains but does not lose much money if things do not turn out as expected. The author gives a lot of examples of his past and present holdings,how he chose them, and how they have performed against his expectations. The book is easy to read and does not use lot of terminology keeping it simple and easy to understand.
Written by the father of value investing himself, this book is undoubtedly the best book on value investing you will ever read. Benjamin Graham was a professor at Columbia University and is mentor of Warren Buffett. The book was written way back in 1949, post world war, but its principles are still practised by some of the most successful investors and have stood the test of time. Almost all the books written on value investing have taken a page or two from this book. No wonder this book is the mother of all books on value investing ever written.
Written By Lauren Templeton, niece of Sir John Templeton, a billionaire investor and owner of Franklin Templeton investments, who is called the greatest stock picker of the century by money magazine. John Templetons fund is a global asset management company which outperformed the market for a good fifty years. ?Investing the Templeton Way provides a never-before-seen glimpse into Sir John’s timeless principles and methods. Investing the Templeton Way provides historical examples of his most successful trades and explains how today’s investors can apply his winning approaches to their own portfolios. The book gives a detailed explanation of his well known principles of investing at the point of maximum pessimism, a technique that Sir John Templeton used throughout his investing career and capitalized on it. The book also discusses how to keep a cool head when other investors react to the bad news. It talks about how you can become a bargain hunter by buying from the people when they are unloading the stocks in fear and sell when they are desperate to buy.
Philip fisher was an American author known for his book Common stocks uncommon profits the book was first published in 1958. Philip Fisher began his career in 1928, and worked as a security analyst with the Anglo London bank in San Francisco. Fisher’s famous “Fifteen Points to Look for in a Common Stock” from “Common Stocks and Uncommon Profits” are a qualitative guide to finding well managed companies with growth prospects. ?
Although the book was written more than half a century ago, the book holds a lot of relevance even in the modern market. The book, unlike Grahams Intelligent investor looks for the qualitative aspect of a business rather than just analyzing numbers. His 15 points for stock selection mentioned in the book provide immense insight to the analysis of stocks. The book has very few mathematical formulas and plays on logic and reasonings behind making an investment decision. The book is different from other quant heavy books that rely heavily on financial projections for predicting future growth of the company.
To take full advantage of the book, read it with Benjamin Grahams intelligent investor to get a complete picture of how you can explore and find great businesses for your portfolio based on quantitative analysis explained by Benjamin Graham and qualitative analysis by Philip Fisher.
Valuation is the core of any investment decision, it not only gives us an idea on how much to expect from an asset, but the right price at which we should buy to maximize our return on investment. Who can explain valuations better than Aswath Damodaran himself. Aswath Damodaran is a professor of finance at Stern School of Business at New York University where he teaches corporate finance and equity valuation. In this book, Aswath Damodaran explains equity valuation inn a simple language that everyone can understand. The book is crisp and almost jargoon free, but does not compromise on quality of writing and explaining the concepts in a detailed and easy way. Damodaran distills the fundamentals of valuation and develops models that you can easily understand and use. Along the way, he covers various valuation approaches from intrinsic or discounted cash flow valuation. The book is a great start for investors who want to learn valuation and value investing, but find it hard to understand the concepts because of the complexity of the topic. Aswath Damodaran has made valuation very simple, crisp and light to understand even for someone who is completely unaware of the concept of valuation.
Value investing is the most logical way of making an investment as it is based on very rational grounds of assessing the present value of a business and forecasting its future value, and comparing it with the value offered by the stock market. Companies with strong growth potential trading at a lower valuation are usually great investments. Value investing is not as complicated as it looks, no matter who you are or whatever is your background, you can learn and implement valuation techniques and pick the right stock for your long term portfolio that will give you better than average compounding returns over a long term. After reading the books mentioned above , I am sure value investing will no longer be a mystery for you.