The essence of value investing

In the first of a series on value investing, we get down to the basics in far north Queensland.

The word value comes in for a lot of abuse these days. You'll often hear that 'so and so is a value investor' or that 'such and such is a value share', but it's not always very clear what these things actually mean. For some it's all about buying shares on low PERs; for others it's about buying tangible assets for less than their book value; while still others claim that a stock like Cochlear can offer value, despite a PER of 36 and a price to tangible book value of 9.

So what's the theory that can tie up all these loose ends? As Australia's leading value investing publication, we've decided to offer up a guide to the whole caboodle. In this issue we're kicking off with a look at the essence of value investing. In coming weeks, we'll expand on this to tie in PERs, book value, margin of safety and all the rest of it.

Old as the hills
The idea of value investing is, in fact, as old as the hills—or at least it's as old as the people that have lived on their slopes. Take the ancient Yir Yoront people of the Cape York peninsular for example. They desperately needed stone axes for a whole range of daily activities: collecting firewood, making tools, building huts and climbing trees to gather honey (for an idea of how this might work, head along to the woodchop arena at Sydney's Royal Easter Show). Yet, living as they did on a flat alluvial coastline, they didn't have the materials or the know-how to make these vital tools.


To read more of this article on the Essence of Value Investing, visit The Intelligent Investor at www.intelligentinvestor.com.au to find out more about value investing.