I am private value investor.
Alongside my own portfolio I’m managing my family and relatives investment accounts.
My approach to investing is based on the Graham and Dodd value investing.
Fundamental analysis is always my starting point. I’m focused on the long term results. When I’m buying a stock I’m always buying a business behind it. All my efforts are devoted to finding undervalued securities.
In practice I have divided my investment process in three main categories:
- High Quality Stocks
- Deep Value Securities
- Special Situation Investments
High Quality Stocks
These stocks should be “stalwards” of my portfolio. Normally this is my largest category of investments.
Companies in this category have sustainable competitive advantage. I seek to buy companies that will earn high returns on capital while growing steady for many years to come.
Many times it’s simple business with favorable long-term prospects. I’m looking for consistent earnings and good return on invested capital which compound in the long run considerably better than the stock market averages. Because of franchise and moat sustainable earnings power value is greater than asset value. Debt is used wise and sometimes hardly at all. Management is able and honest. Typically they are shareholder friendly and good allocator of capital.
The most challenging task is to find above mentioned business at very attractive price. You have to understand company and its business well to determine right intrinsic value and to recognize a large enough – margin of safety – gap between price and value. It’s not easy and every day job to find clearly undervalued securities from this category.
Deep Value Securities
In my portfolio this category contains mainly classical Graham net-net stocks. It can also include companies that are plummeted after market crash. These companies are interested if their earnings power in long term and normal level is strong enough to guarantee sufficient margin of safety. I’m also looking for securities with hidden asset value.
I search stocks selling for less than their net current asset value from many different markets all over the world. Depending on market sentiment availability of net-nets can vary a lot. When the amount of net-nets is low in United States you can probably find them from Japan, Singapore or Australia. Of course local economic conditions and framework can influence the quality of net-nets a lot. Net-nets from some emerging country are not necessarily same thing than what net-nets are United States or in United Kingdom.
Special Situation Investments
These are securities whose financial results depend on more special corporate action rather than general market movements. Traditionally special situation investing covers securities whose financial results depend on corporate events such as spinn-offs, mergers, risk arbitrage, liquidations, reorganizations etc.
I also include stocks which price has fallen hard due to some single special events at the company level (e. g. BP and Volkswagen) or on the market level ( e. g. Oil industry, Russia). Just recently (2015/2016) you could have found some special situation opportunities among oil and gas companies.
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