The Boring Invstr - Your Simple, Digestible Weekly Investing & Finance Newsletter

Hello Boring Invstrs,

Welcome Back to The Tenth Edition of The Boring Invstr!

What We Are Covering This Week:

Value Investing - What it is, how to use it, and real-life examples you can learn from.

What Is Value Investing?

Value investing is a strategy that revolves around buying a company that is trading for less than its intrinsic or book value. Later, we will cover how you can analyze and compare a company’s intrinsic value or book value.

A Major Mental Framework for Value Investors:

They believe the market overreacts to good and bad news, resulting in a difference between a company’s stock price and its intrinsic value. Value investors believe in the difference because a company’s intrinsic value is centered around a company’s long-term fundamentals.

How You Can Use Value Investing?

Common metrics value investors use:

• Price-to-Earnings Ratio (P/E Ratio) - Compares the trading price to the company’s earnings per share. A low P/E ratio indicates that the stock is undervalued and vice-versa.

• Price-to-Book Ratio (P/B Ratio) - Compares the trading price to its book value per share. A high P/B ratio indicates that the stock is overvalued and vice-versa.

• Dividend Yield - Measures the amount of a stock's dividend as a percentage of its price. A high dividend yield indicates that the stock is undervalued.

  You can also factor in dividend growth. If a company increases its dividend yield often, it is a positive sign.

• Free Cash Flow (FCF Ratio) - Measures the cash leftover after all expenses. Illustrates how efficient a company is at generating cash from its sales. Look for a high free cash flow value.

• Debt-to-Equity Ratio (D/E Ratio) - Measures a company’s debt compared to its assets. A low D/E ratio shows a company can generate shareholder equity with less debt. It can vary from industry to industry.

  Amazon over the past couple of years has increased its debt by investing in facilities that will allow them to expand its operations. This is an example of a higher D/E ratio but it does not mean the company is running poorly.

  

  Amazon Debt/Equity Chart - Yahoo Finance

  All these ratios vary depending on the industry. A company with a bad ratio does not mean that it is a poor company. It is important to dig into the company itself through its financial filings and investor letters.

Comparing Metrics:

All the ratios above are best compared to the company’s industry you are analyzing. Some industries will have higher or lower averages than others. Do your own research, make your own decisions, and even advise a professional.

Notorious Value Investors:

Benjamin Graham “The Father of Value Investing” - Invested in companies that were undervalued compared to their intrinsic value. By doing this, investors could earn a "margin of safety" and protect themselves from losses over the long term. He also wrote one of the greatest investing books of all time, “The Intelligent Investor.”

Warren Buffett & Charlie Munger (Ben Graham’s Shadows) - Both learned Ben Graham’s principles and are notorious for investing in strong companies during down periods while building Berkshire Hathaway.

Value investing is a long-term investment strategy. It is not a get-rich-quick scheme and values patience and discipline. Value investing can generate strong long-term gains.

This is not investing advice. Results may vary and you should always consult a professional if you have questions.

Add your value to something this week!

Trey