Value investing shifts our portfolio management focus away from speculative profits, market trends and the frequently changing opinions of experts, focusing instead on company and market “fundamentals.”
Value investing is an investment approach developed by Ben Graham at Columbia Business School in the 1920’s. It was subsequently refined by Graham and his partner David Dodd through various editions of their famous book Security Analysis. Well known proponents of value investing include Berkshire Hathaway chairman Warren Buffett.
With over three decades of experience, we have found that our three-part value investing strategy is the best way to reduce risk and volatility and earn consistent returns over time. Our diligent, patient and opportunistic approach has served our clients well, through good and bad markets:
- Appraise the intrinsic value of each company over a business cycle;
- Seek long-term growth of capital by investing in companies that we perceive to be mispriced;
- Utilize a margin of safety to promote return of capital…not just return on capital.
Why does our value investing approach work? The prices of well-established, high-quality stocks tend to rise over time as the companies create value for shareholders. Stocks touted by brokers and the media often rise to extreme highs in expectation that they will meet or exceed their short-term earnings forecasts. However, they can decline dramatically when they fail to meet those forecasts.
In psychological terms, investors put unrealistically high expectations on stocks in that are in the broker/media limelight, often missing opportunities in those companies not currently in the limelight. Over time, patient investors are rewarded for focusing on the long-term fundamentals while avoiding the volatility inherent in chasing short-term trends.
On the fixed-income side, bonds offer clients the potential for regular income, preservation of capital, portfolio diversification and a hedge against economic uncertainty. Our three part fixed-income strategy seeks to provide liquidity, principal preservation and consistent income:
– A focus on the economic environment and interest rate outlook;
– Rigorous credit analysis to ensure to ensure that investments are of the highest quality;
– An emphasis on liquidity to ensure flexibility in deployment of assets.
– These strategies benefit from our unique economic forecasting, close monitoring of the Bank of Canada and international credit and monetary conditions.
Our insight and expertise in both equity and fixed-income research has earned Sprung Investment Management a reputation as a trusted advisor to individuals, industry and the Canadian investment media. Sprung currently provides research, analysis and consulting services to leading Bay Street firms and to financial media such as BNN, CBC, Globe and Mail, Financial Post and MoneySense.
Value Investing Quotes
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
“Stock prices fluctuate far more than real business values do.”
– Warren Buffett
“The essence of investment management is the management of risks, not the management of returns.”
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
“The market is fond of making mountains out of molehills and exaggerating ordinary vicissitudes into major setbacks.”
— Ben Graham
A list of investing books recommended by Michael Sprung is posted here>>