Lux Investing
Why does Value Investing work in the long term?
More than following Buffett's strategy blindly, I think the core question is why does his strategy work? (in the long term)
Public Comments
- Value= Buy low sell High Momentum=Buy High Sell Higher Both work. Value requires a high degree of diversification as some value plays will end up worthless (Delta, Worldcom, Enron) . . .Momentum strategies keep you invested in the best stocks dumping the losers. For more on both try http://www.fasttrack.net/Fidelity_Vanguard_ETF_pick_best_fund.asp
- Value investing works because you are in effect buying a stock on sale. Peter Cundill, who has been a value mutual fund manager for over 30 years, says that while growth investors try to buy a great stock at a good price, he tries to buy a good stock at a great price. Sometimes a company's stock price gets beat up either justly or unjustly. An unjust example would be when a particular sector gets hit hard, not every company in that sector deserves to get hit, but they often times are just because they are in the sector. A company's price can be justly hammered if it has been managed poorly. Either way can be a good canidate for a value investor. The unjust simply needs to be discovered and the just needs to work out there problems and get the ship headed in the right direction. A good value investor looks at the companies fundamentals like P/E ratios and price to book as well as cash flow and many other fundamentals. If they determine the company meets there criteria for a value then they buy. Typically when a company rights itself after being run poorly, the stock price lags behind. Consequentally, if a value investor spots the sound fundamentals of the recovery they can invest early and reap the rewards of the recovery. Another thing Cundill likes to say is that he tries to buy a dollar worth of stock for fifty cents.
