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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Steve168 who wrote (20155)	12/3/2004 2:58:47 AM
From: Paul Senior	Read Replies (4) \| Respond to of 78523

Steve168, man, you ask for a lot of info. that's really tough to respond to in a brief response. (Well, tough for me to respond to.) I assume your post is directed at the thread, since there are some pretty decent value players - posters and lurkers - who do know Graham methods and (or) who invest successfully using book value as a key component - if not basic component - of their investing style. These guys can give better responses than I can, plus they're likely consistently better investors than I am. I do use book value where ever I can. Of course, we really can't use b.v. analyses with some businesses, e.g. software firms, consulting firms, and some would say tech firms (But you and I both will buy tech stocks when price is below book and below cash (with no debt). And it has worked (sometimes? mostly?) in those rare instances when stocks are available like that. The basic idea in book value analyses - as I see it - is that we want to shrink the population of stock choices in the "low price/book value" category (vs. "high price/book value" category which we ignore). Here one picks one's choices. Some might be: low price to book value and low p/sales (thus eliminating high p/sales stocks, low p/bv from consideration) low p/bv and low p/e. And maybe reduce this subset further perhaps with: low p/bv and low p/e and low p/sales. There are a number of other "proven" ways to cut back the number of stocks in the "low p/e" category in order to maximize potential gains. Too late at night now for me to dig out my stuff (Dreman books), but Tweedy-Browne has published something called "What Works on Wall Street". (refer to their website) They like the cut (I'm doing this from memory & could be wrong) low p/bv and high insider buys. Pietroski uses low p/bv (well, as you say these academics call it book to market)and some financial numbers (and/or relative strength?) Of all these methods of investing, the best (highest performing) that I see current performance on, Pietroski's is the BEST PERFORMER, BY FAR so far in 2004. (I'll dig out the ref. I have.) I have been using p/bk as a bedrock for many decades. However, I can not report that I am so successful that I am fabuously rich. It could be that it's wrong to base so much on the historical or even tangible "book value" statistic, but more likely it's my issue only. Because I dance all over the place (tech, GARRP, high relative dividend, Buffett, etc. etc,) or I have other personality faults - patience too short or patience too long with selections. Or else I switch too frequently the additional cuts I make to "low p/bv", i.e. sometimes high insider buys, sometimes high roe, sometime high profit margins, etc. etc. Or maybe I'm not making the right or best cuts (Pietroski for 2004).

To: Steve168 who wrote (20155)	12/3/2004 6:20:21 AM
From: Dave	Read Replies (1) \| Respond to of 78523

Steve, About 10 or so years ago, a piece of academic literature came out that basically said that Beta is dead since the Capital Asset Pricing Model (CAPM) did not reliably anticipate future stock returns. In this research by Fama & French, they found that the two best "indicators" for stock returns are: Book to Market and Small vs. Big. In other words, look for small capitalization stocks that are priced at or below their book value. The real question is, since the "market" should know this by now, has this "quirk" been arbitraged away? Dave

To: Steve168 who wrote (20155)	12/3/2004 11:08:50 PM
From: Spekulatius	Respond to of 78523

Steve and all, first of all I assume that with book value, you mean tangible book value. For me, at least the tangible book value is the metric I am looking for, as and high tangible book value indeed may be an indicate of value. i personally don't rat it too high, at least not before looking at the underlying asset that constitute this book value. Often enough a high book value (relative to valuation) is just an indication of overvalued assets. One example may be network assets of telecom service companies that is written down in special writeoffs, destroying the book value. Book value is really an accounting concept, as are earnings. Only cash, and cash flows are "real" and absolute (sometimes accountants even manage to screw up that). So in short, book value is just one metric i am looking at, and not my favorite at that. Other are cash/share, free cash flow, growth rates, LT business prospects, management quality, price /sales to name a few. "Value" has many forms and is in the eye of the beholder, so a value investor that only looks at high relative tangible book values forgoes many chance to pick up stocks below "fair value".