The history of Value investing is very long.
Ben Graham is considered to be the father of Value investing. In his book ‘The Intelligent Investor’ he defined three key concepts: 1) a company has an ‘Intrinsic Value’ that the intelligent investor should seek to establish; 2) Mr. Market (i.e. the stockmarket) is a manic-depressive entity quoting widely different prices for the same company depending on its mood; and 3) the ‘Margin of Safety’ concept where investors should look for a significant margin between their estimate of the value of a company and what Mr. Market is asking them to pay for it.
Subsequent practitioners of a Value based approach reads like a Who’s Who of Investing: Warren Buffett, Mario Gabelli, Seth Klarman, Charles Brandes, Walter Schloss, John Neff, Christopher Browne (of Tweedy Browne), Anthony Bolton, Tony Dye and, our favourite, Sir John Templeton. The latter tops our list as he communicated most effectively how to approach the most difficult times for Value investing such as, most recently, when no-one believes you:
“To get a bargain price you have to look where the public is most frightened and pessimistic. When you purchase a large amount of future earnings for a low price, you have made a good investment. The only way to accomplish this is to buy when others are selling.”