The best stock values ​​are often found on the discard pile

Charlie Munger, now 98, and Warren Buffett, 91, held court during Berkshire Hathaway’s annual meeting in Omaha, Nebraska, on April 30. Buffett likes to talk about how he pulled investment books from the library and saved his money so he could buy his first stock when he was 11 years old. He tells how he studied stock charts and read other approaches, but decided he was on the wrong track after reading a book by great investor Benjamin Graham.

Graham, considered the father of value investing, was a professor at Columbia University, where Buffett attended graduate school. Graham and “Dodd’s Security Analysis” was first published in 1934. It was the bible I had to study while pursuing my MBA (in financial accounting) at NYU in my portfolio management classes. Its principles are still taught decades later to every candidate who wishes to become a Chartered Financial Analyst. It was followed in 1949 by “The Intelligent Investor”, a more popularized version, which Buffett found transformative in evolving his own approach to investing.

Graham’s basic concept was to thoroughly study the company you are investing in to validate that you are likely to see return on your capital and earn an adequate return for the risk you are taking. Because he knew that stock prices go up and down, Graham was convinced that, in other words, our goal was to “buy low and sell high.” Buffett used this strategy to become one of the richest men in the world by controlling since 1962 Berkshire Hathaway, his publicly traded holding company (BRK).

After World War II, many older Americans had little faith in banks (many of which had failed during the Depression) and they had even less faith in stocks. In the early 1960s, the NYSE ran television advertisements urging investors to “own their own share of American commerce.” If you were afraid to buy blue chip stocks and salt them, many people have turned to mutual funds as a savings mechanism. In recent years, better tax structures and lower fees have made ETFs (Exchange Traded Funds) more popular alternatives, but they often represent the antithesis of what Buffett, Munger and people like me were trained to do. . They follow a clue so that the computers simply move the gambling chips without thoroughly studying the companies and their business plans. I was amused by the frankness of their comments on Saturday.

Munger called today’s markets “almost a speculative mania.” “We have computers with algorithms that trade for other computers.” “We have people who know nothing about stocks, advised by stockbrokers who know even less.” Buffett then went on to say that under the new system where they don’t charge money to execute stock trades, brokerages now want to train you to use put and call options on which commissions are high. “They have the system in place so if you want to buy a 3 day call you can… They make more money selling calls than if you buy the stock so they teach you the calls .” In stark contrast, Buffett says “our favorite holding period is forever.” He evaluates a company for the future to decide if he wants to do business with management for the long term. That’s what you should do. It’s just easier for you to get out if you’re wrong than for him to sell millions of shares or the whole company if he’s wrong.

Long-term patient investing is the antithesis of buying options. I remain convinced that it remains the best way to truly build up a long-term heritage. Buy good companies when no one else wants them. The best values ​​are often found on the discard pile. Pay a discounted price, not top dollar. Then sit patiently and wait for great management to build the future you see possible.

Joan Lappin CFA has been called an “investment guru” by Business Week and a “top manager” by the Wall Street Journal. The Sarasota resident founded Gramercy Capital Management, a registered investment adviser, in 1986. Email [email protected] Follow her on Twitter: @joanlappin. His past columns appear at

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