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The term "value investing" is confusing because it is used in two different ways: The first way it's used is to describe buying stocks that are cheap relative

The term "value investing" is confusing because it is used in two different ways: The first way it's used is to describe buying stocks that are cheap relative to their current financial characteristics (price to book, price to earnings, price to FCF, etc). This approach is usually contrasted with "growth", which would refer to investing in companies with a compelling thesis and bright future ahead of them. A second way the term "value investing" is used is to describe the approach of Buffett/Munger where the investor compares the current price to the present value of the future cash flows and seeks a margin of safety above that. You can do passive investing in the first approach. Just go buy ETFs that weight towards value metrics, like Vanguards $VTV value ETF. You can't really do passive investing in the second approach, aside from investing money in the funds of people who do that for you.

AmericanChopper 3y ago
You’ve just described the same thing twice. You have a model for how to value a company, and you look for examples of market inefficiencies. Buffet/Munger initially took advantage of the fact that there used to be much more opportunity to find these inefficiencies, because information was used much more inefficiently (via mountains of paper records). That’s not the case any more with huge amounts of digital information available along with the technology to process it as quickly as it becomes available.
neop1x 3y ago
So-called "value ETFs" mostly don't contain stocks that I consider value stocks. A value stock's price at the time of purchase must be below the historical average market P/E multiple, with a reasonable growth rate expectation and analyst forecast. It should not have a high LT debt-to-capital ratio, and it should pay a stable dividend. If you look into those "value ETFs," there is a lot of garbage. Some companies from their portfolio were good value stocks many years ago, but they still keep them in the portfolio now, even though growth and expectations have deteriorated substantially. As a passive ETF investor, you would end up much better with a simple SPY/SPX or even BRKB than with those so-called value ETFs. Just compare the charts if you don't believe me.
- devoutsalsa 3y ago
  Value investing is buying a dollar for less than a dollar.
Arebkhn 3y ago
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- Arebkhn 3y ago
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AmericanChopper 3y ago

You’ve just described the same thing twice. You have a model for how to value a company, and you look for examples of market inefficiencies. Buffet/Munger initially took advantage of the fact that there used to be much more opportunity to find these inefficiencies, because information was used much more inefficiently (via mountains of paper records). That’s not the case any more with huge amounts of digital information available along with the technology to process it as quickly as it becomes available.

neop1x 3y ago

So-called "value ETFs" mostly don't contain stocks that I consider value stocks. A value stock's price at the time of purchase must be below the historical average market P/E multiple, with a reasonable growth rate expectation and analyst forecast. It should not have a high LT debt-to-capital ratio, and it should pay a stable dividend. If you look into those "value ETFs," there is a lot of garbage. Some companies from their portfolio were good value stocks many years ago, but they still keep them in the portfolio now, even though growth and expectations have deteriorated substantially. As a passive ETF investor, you would end up much better with a simple SPY/SPX or even BRKB than with those so-called value ETFs. Just compare the charts if you don't believe me.

devoutsalsa 3y ago
Value investing is buying a dollar for less than a dollar.

Arebkhn 3y ago

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Arebkhn 3y ago
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