Hoobastank, an American rock band, performs for service members and their families from across Okinawa on Kadena Air Base, Japan, Nov. 15, 2012. U.S. AIR FORCE PHOTO/STAFF SGT. SARA CSURILLA
Ask ten value investors to describe what value investing is, and you will likely get a handful of somewhat similar answers.
We look to buy companies for less than they are fundamentally worth…We invest in stocks that trade at a discount to their intrinsic value…We purchase high-quality businesses the market has put on sale…
Said another way, we basically do what Warren does.
These descriptions are not wrong—they describe the goal of value investing well. The problem is their failure to unlock the core reasons why value investing has worked so well for so long. They don’t tell the whole story.
As Columbia Business School’s Bruce Greenwald has pointed out, no one—value investor or not—actively searches for fifty cents worth of value for a dollar.
In other words, everyone thinks they are getting a bargain. Even the ones buying Tilray.
It behooves us as value investors, then, to think about our philosophy, not only in terms of a discrepancy between value and price, but also in a manner that illuminates the behavioral reasons the discrepancy was created in the first place. Such thinking allows us to mold our own investment styles using the core underpinnings of a value-oriented philosophy.