“Value investing” means different things to different people. To us, value investing is buying a business at a discount to what we believe it is actually worth. What matters to us is determining whether a stock is under priced, fully priced, or overpriced relative to its net asset value or its future income stream. For example, a company growing rapidly and earning high returns on incremental capital would be worth more than a business that is highly capital intensive with little growth – even though the latter may be “cheaper” and the “best value” as measured by conventional price/earnings and price/book value ratios. The “more expensive” stock may in fact be far better value.
Among other factors, good value depends on a company’s growth, returns on incremental capital invested, and the ability to generate free cash and then deploy it wisely.
For a little more insight into our investment process, please refer to our Quantitative & Qualitative Analysis page.
“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
– Warren Buffett