margin of safety

Value investing approach: Buffett lessons

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Dear Fund Director,

Most likely at least one of the funds under your directorship mandate may be managed by a fund manager following a value investing approach.

Value investing is an investment philosophy that evolved based on the ideas that Ben Graham and David Dodd started teaching at Columbia Business School in 1928. There are many interpretations of what value investing is, but the basic concept is as follows: essentially you want to buy stocks at a discount to their intrinsic value. Intrinsic value is calculated by taking a discount to future cash flows. If the stock price of a company is lower than the intrinsic value by a “margin of safety” (normally ~30% of intrinsic value), then the company is undervalued and worth investing in. Generally, value stocks are companies that are in decline but the market has overreacted to their situation and the stock is trading lower than their intrinsic value.

buffet cnbc

I hope that after listening to the whole or part of the video above, you may have some valuable questions to pose to the fund managers following this approach.

Yours faithfully,
The Indeep Fund Director.

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