Warren Buffett has long been a champion of value investing – the principles helped him amass about $150 billion in personal property. It’s an investment method that means looking at it for the long term, keeping nerves and avoiding risk-taking behaviors – Buffett learned philosophy from economist Benjamin Graham’s 1949 Smart Investors. So, what is value investment? How does it work? What is value investment? The short answer is that value investing is a stock that buys a stock that trades below its intrinsic value. Spier told CNBC via video message: “Many people would call it a value stock a cheap thing, such as a price ratio or a price-to-earnings ratio.” A price-to-(P/B) ratio below 1 could mean that the stock is undervalued because This shows that if a company’s assets are sold, they will be worth more than the value of its stock. Meanwhile, the low price-price earnings ratio (P/E) ratio (measures stock price relative to earnings per share) shows that the stock price is very low compared to the company’s earnings. Like many investment methods, value investing is about figuring out the value of future stocks. But value investors also often use a counter-trend approach to stocks they believe the market is missing. Spier said that is why value investors must be “highly rational”. He said you have to be able to “control your behavior” when the rest of the market seems to be moved by emotions or driven by short-term goals. Buffett warned that when another investor did well, he warned against risk-taking or “jealousy” and said he wanted to go to “a company run by honest and capable people.” The goal of holding a “long-term, long-term” value investor holding a stock is to hold a stock until the price they calculate is a price that reflects its intrinsic value, which can take years. “It’s important to buy a good business at a good price and forget it for a long time,” Spear said. Buffett said his ideal holding period is “forever”, although value investors are usually getting their worth,” he said. the price when selling stocks. This long-term holding strategy means value investors are less concerned about the factors that affect the market in shorter term (such as conflict or political events). Bill Nygren, a value investor who runs the $23 billion Oakmark, said, for example, the election victory of U.S. President Donald Trump is unlikely to affect Oakmark. Things to buy in the quarter. Nygren looks at factors such as how much the industry will grow, the company’s cash flow and how to deploy it within seven years. “This affects the estimate of business value is much greater than trying to adjust the estimate of earnings over the next few years based on higher or lower tariffs or higher or lower tax rates,” Nygren told CNBC in a video call. ” Example of Value Stocks – How they execute the MSCI World Value Index is composed of large and medium-sized companies from 23 countries. Its largest voters are in areas including financial companies such as JPMorgan Chase and Bank of America, as well as healthcare such as Johnson & Johnson and Pharmaceutical Company Abbvie. The second largest component of the index is Berkshire Hathaway, of Warren Buffett Holdings. However, the MSCI World Value Index has performed poorly over the past decade. In the 10 years ended January 31, 2025, the MSCI World Value Index recorded an annual survey rate of 8.26%, while the technology-heavy MSCI World Growth Index returned 13.56% over the same period. Sam Ziff, chief investment officer at value investment firm Oldfield Partners, noted that over the past 20 years, he has given examples of his value investment strategy. First, the insurance company Chubb. Zif said the company has generated an “unparalleled” average consolidation ratio that measures premiums charged by insurers versus amounts paid in claims. In the third quarter, the total ratio of insurance companies was 87.7%. Numbers below 100% are a sign of profitability. Ziff said in an email to CNBC that some insurance companies “hunted their cash on payments through premiums and were concerned about the consequences”, but Chubb’s focus is on a long-term focus. The second example given by Zif is the Swedish bank Handelsbanken, who said it is “conservatively managed” and has a long-term approach. Zif said it has a “attractive” valuation, lower than the P/E ratios of banks such as Wells Fargo and Bank of America, while its dividend yield is more than 10%. According to Morningstar, if you are interested in value investing in the United States and beyond, you may want to look “expensive” outside of the United States when it starts in 2025. Philip Straehl, head of capital markets and head of asset allocation at North America, highlighted opportunities for UK homebuilders (who said could rise 50%) and European Autos , he said “huge discounts” could be found. Most of Buffett’s investment in Berkshire Hathaway is in U.S. companies, Apple, U.S. Express and U.S. Bank are its top voters. But Berkshire also owns significant stakes in companies outside the United States, such as Japanese trading companies Itochu, Mitsubishi, Mitsui and Sumitomo and Marubeni, with a total value of more than $20 billion. In a 2023 letter to shareholders, Buffett said he likes the companies that keep cash to “build many businesses” and because their management “is far less positive about their own compensation than typical compensation than the United States.” Meanwhile, about 56% of the $337 million aquamarine fund operated by Spier are investing in U.S. stocks, including Mastercard, American Express and of course Berkshire Hathaway. But it also owns global stakes, including the Indian Energy Exchange and Chinese automaker Byd. Value and growth stocks are usually the rate at which investors think will grow faster than other markets in the short term. Large tech companies are one of the most famous growth stocks, with Apple, Nvidia and Microsoft making up the top three in the MSCI World Growth Index. The index has an annual growth rate of 13.56% over the 10 years ended January 31, 2025, meaning it outperformed the MSCI World Value Index by more than 5 percentage points. However, over the past 50 years, value stocks have performed slightly higher, with the MSCI World Value Index beating the MSCI World Growth Index by 1 percentage point. However, the difference between value and growth is not always clear. Nygren said that “the general impression is that value investing is the opposite of growth”, but the idea of growth investors buying “really good” companies and “value managers buying the remaining goods” is a myth. “The biggest difference is that if the price is right, the value manager is willing to buy almost everything,” he added. “That includes companies that you are talking about are average businesses … we own GM for five times the revenue. We own six times the Citigroup and we want them to earn in the year.” Nygren added that the market is much bigger than his company thinks. Oakmark, on the other hand, owns shares in Alphabet and Salesforce, which are often considered growth stocks. Nygren said that this is “much higher than ordinary companies, but we think they are priced like regular businesses.” Nygren said the risks and disadvantages of value investing are not suitable for everyone. He said you need to have a personality that aligns with the principles, “because it’s hard to keep your beliefs when it takes longer to reach your point of view,” he said. His advice is to consider your General purchasing habits. “If your personality is that you’re happy to pay the retail price for Chanel, then value investing doesn’t match your personality,” he said. Spier’s advice is to beware of “value traps.” There are many stocks that look cheap, but there may be a hidden reason, he said. Aquamarine Fund owns shares in Seritage, a real estate investment trust (REIT) that broke away from Seritage from retailer Sears in 2015. Spier said he bought stocks because he believed the properties were worth “a lot”, but rising interest rates and rising interest rates are the popularity of online shopping, which means his investment has been “detached”. “So there is a stock that is cheap for me and it’s much cheaper,” Spier said. He added that there are a lot of people investing in this way now, which creates more competition in the market. Value Opportunity Looking to the Future, Spier likes the Indian credit rating company Care Care ratings for its potential to compete with U.S. companies such as Moody’s in five to 20 years. “I find it interesting that when the financial system and the global economy reset and rebalance, for example, the largest economy that speaks English is not the United States, but India,” he said. “For Nygren, the best opportunity is always Other markets overlook opportunities, “in traditional oil and gas and automobile companies, “good opportunities.” Nygren said it would be “wrong” that the world will stop relying on fossil fuels soon. “The two companies are so cheap that if it takes decades to achieve, stocks are still a good investment,” he said. Similarly, he thinks the market’s excitement for electric vehicles is exaggerated. Nygren said electric vehicles are “just impractical” for driving long distances in the United States, naming General Motors a “very attractive” alternative. Financial companies account for about 38% of the Nygren Oakmark fund, which includes Wells Fargo, payment company Fiserv and investment company Charles Schwab. He said that now, the industry is much better managed than the financial crisis during the 2008-2009 period. “Banks” look at growth as a share per share, so when they generate a lot of capital, instead of trying to make it bigger, they return it to shareholders. “At the same time, Ziff said that Oldfield’s partners are mainly focused on value investment opportunities outside the United States, and he named beverage company Heineken as a “first-class” beer brand, while European steel company Arcelor Mittal is “trading at extraordinary discounts.” -CNBC’s Yun Li contributed to the report.
Warren Buffett left before the annual general meeting of Berkshire Hathaway in Omaha, Nebraska on May 3, 2024.
David A. Grogen | CNBC
Warren Buffett Long been a champion of value investing – these principles helped him accumulate personal wealth About $150 billion.
It’s an investment method that means looking at it for the long term, keeping nerves and avoiding risk-taking behaviors – Buffett learned philosophy from economist Benjamin Graham’s 1949 Smart Investors.
So, what is value investment? How does it work?
