Value Investing
Value investing is a fundamentals-based investment style that ACATIS has enhanced with the modern “Buffett 2.0” approach, incorporating not only financial analysis but also the assessment of a company’s future viability.
value-orientated investing
Definition and history
of classic Value Investing
Value investing, or value-orientated investing, refers to an investment strategy in which the decisions about the purchase or sale of securities are based exclusively on intrinsic value.
Classic value investing, as pioneered by Benjamin Graham, is a disciplined investment approach rooted in rational analysis and long-term thinking. Introduced in Graham’s seminal work “Security Analysis” (co-authored with David Dodd in 1934), this philosophy laid the foundation for modern value investing and continues to influence investors worldwide.
At the core of value investing lies the concept of intrinsic value—the true, underlying worth of a company based on its fundamentals, such as earnings, assets, and cash flow. A value investor seeks to purchase stocks trading significantly below their intrinsic value, thereby creating a margin of safety. This margin acts as a protective buffer against unforeseen market downturns or errors in valuation, reducing the risk of permanent capital loss.
Graham illustrated market behavior through the famous allegory of Mr. Market, an unpredictable business partner who offers to buy or sell shares at varying prices each day. Sometimes, Mr. Market is overly optimistic, quoting high prices; other times, he is excessively pessimistic, offering shares at a discount. The wise investor uses Mr. Market’s emotional swings to their advantage, buying when prices fall below intrinsic value and selling when they exceed it, rather than being swayed by his erratic moods.
Evolution of Value Investing
Graham also cautioned against reacting impulsively to short-term market fluctuations, emphasizing that the stock market is driven by emotions in the short run but reflects true value in the long run. As he famously stated, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” Successful value investors, therefore, focus on a company’s long-term fundamentals rather than short-lived market trends.
Through the principles outlined in “Security Analysis”, Benjamin Graham established a timeless investment philosophy centered on patience, rational decision-making, and a commitment to buying quality assets at favorable prices—core tenets that continue to guide prudent investors today.
Modern approaches to value investing now aim to integrate more dynamic and nuanced perspectives that go beyond traditional frameworks. These approaches incorporate elements from earlier stages, such as Graham’s focus on asset-based value and Buffett’s emphasis on predictable growth, while also adapting to the realities of today’s rapidly evolving markets.
One key aspect of these newer approaches is the adjustment of current earnings to account for the potential exponential growth seen in industries like tech. Additionally, these approaches recognize that traditional accounting rules can underestimate a company’s true value, for example when it comes to R&D spending. R&D investments, which are typically treated as short-term expenses, should instead be seen as a long-term growth driver, reflecting a company’s confidence in its future.
Moreover, modern valuation methods also take into account intangible assets, which have become increasingly vital in sectors such as technology, biotech, and digital platforms. Unlike traditional industries, where physical assets like factories and equipment are central, many of today’s most valuable companies rely heavily on intangible assets like intellectual property, software, brand value, customer data, and network effects. These assets, often overlooked or undervalued by conventional accounting, play a critical role in a company’s long-term success and must be accurately valued in any modern investing strategy. By considering both R&D investments and intangible assets, these advanced approaches offer a more comprehensive view of a company’s potential and true value.
If you want to know how ACATIS sees the modern style of value investing, click here.
Great people worth following
A collection of resources that we enjoy reading and learning from.
Musings on Markets
Legendary Finance Professor Aswath Damodaran of the Stern School of Business at NYU shares his thoughts about valuation, corporate finance and the news of the day.
Warren Buffett
A treasure trove of intellectual wealth. Warren Buffett’s shareholder letters are a must-read.
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Letter to Co-Investors
Rob Vinall, one of Europe’s most popular value investor fascinates with well reasoned letters to his Co-Investors.
footnoted*
Michelle Leder weekly highlights SEC disclosures that caught her eagle eyes.
Archived Memos - Oaktree
Oaktree founder Howard Marks regularly summarizes his refreshing thoughts on markets in his memos.
Michael J. Mauboussin
Michael J. Mauboussin published numerous contributions on the subject of investing and some of its underlying basic concepts. There is a wealth of high quality papers worth reading.
Principled Perspectives
Ray Dalio, Founder, CIO Mentor, and Member of the Bridgewater Board shares his macro views on Linkedin – not the value approach but nevertheless beneficial.
World-class podcasts
A collection of resources that we enjoy listening to and learning from.
Tech Buzz China
In this podcast you learn about latest tech, innovative businesses and China, all at once.
Business Breakdowns
Business Breakdowns will dive deep into a single company with investors and operators that know it best.
Great and interersting companies such as Hermès, Netflix or The Home Depot are covered.
Acquired
Invest like the best
Conversations with the best investors and business leaders in the world.
Other great investing resources
Other resources that might be worth your time
Superinvestor Portfolios
Find portfolio holdings of famous (value) investors, follow their buy and sell activities over quarters, based on SEC 13F filing reports and much more.
Mohnish Pabrai
Blog of fund manager Mohnish Pabrai.
Good Investing
Good Investing offers investing podcast, investing resources, events and for passionate investors.
Seth Klarman – Timeless Value Investing
Seth Klarman is a legendary investor and CEO and Portfolio Manager of The Baupost Group
Investment Master Class
Unlocks the Lessons of the World’s Most Successful Investors.
Li Lu’s Essays, Interviews, and Speeches
Li Lu founded Himalaya Capital and embraces the value investment principles of Benjamin Graham, Warren Buffett, and Charles Munger.
Great Videos on Investing
A collection of must-watch videos on the topic of Investing.
Berkshire Hathaway – The latest annual shareholder meeting
Charlie Munger – Daily Journal annual meeting
Rob Vinall – One of Europe’s most esteemed investors. The latest annual meeting.
Dr. Clayton Christensen explores disruption in higher education as an example of his work on the innovator’s dilemma, influencing corporate strategy and decision-making.
Bruce J. Flatt, Brookfield Asset Management – Durable Principles for Real Asset Investing
Michelle Leder –
Daniel Kahneman – Recipient of the Nobel Prize in Economic Sciences for his seminal work in psychology that challenged the rational model of judgment and decision making.
Prof. Damodaran – Valuation in Four Lessons.
Tom Gayner – The evolution of a Value Investor | Talks at Google
Books Selection
Personal top-8 investing books selection
In life, there are a handful of books after reading which you see the world with different eyes. I had my first such experience during my physics studies reading “Modern Quantum Mechanics” by J. J. Sakurai. The beauty of mathematics and abstraction in formulating the fundamental aspects of quantum mechanics – mind blowing! The first finance book that made me feel the same way is “Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.” Christensen was fascinated by the question “Why do otherwise well functioning companies fail?” A fundamental dilemma of large companies is described: Established companies invest a large part in already known and proven concepts that have made them successful and sleep through the new and disruptive innovation. This book is the sum of his research and should be mandatory reading for management, development and marketing departments.
Innovator's Dilemma: When New Technologies Cause Great Firms to Fail
The Innovator’s Dilemma – Disruptive innovation starts small, creeping in at the fringes of a market before revolutionizing entire industries. The paradox? Even the best-run companies—those making all the “right” moves—can still lose their edge as these unexpected challengers rise. A must-read for anyone navigating the fast-changing business landscape.
Accounting for Value
Accounting for Value – Stephen Penman, a Columbia Business School professor, bridges the gap between accounting and valuation, arguing that the two are fundamentally intertwined. This book distills key insights from his more technical Financial Statement Analysis and Security Valuation, making complex concepts more accessible. A must-read for investors looking to integrate accounting principles into their valuation strategies—without the headache of heavy theory.
A Random Walk Down Wall Street
A Random Walk Down Wall Street – If Benjamin Graham teaches you how to value a company, Burton Malkiel explains why that might not be enough. As a Princeton economist, Malkiel argues that markets are efficient precisely because investors analyze stocks, meaning prices already reflect available information. His conclusion? Rather than trying to beat the market, simply earn the market’s return—a strategy he compellingly defends. For value investors, understanding this counterpoint is essential, as Charlie Munger would say: “Invert, always invert.”
The Essays of Warren Buffett
The Essays of Warren Buffett – While Warren Buffett has never penned a book, his annual letters to Berkshire Hathaway shareholders showcase his exceptional clarity, brevity, and sharp financial insight. Lawrence Cunningham distills these letters into thematic sections, offering a structured and accessible dive into Buffett’s timeless wisdom on investing, business, and leadership. A treasure trove for value investors and business thinkers alike.
Competition Demystified
Competition Demystified – Bruce Greenwald simplifies competitive strategy by cutting through the complexity of traditional models like Porter’s five forces. His core argument? The ultimate determinant of competitive advantage is the ease with which rivals can enter or expand in a market. By building strong barriers—whether through customer loyalty, cost advantages, or economies of scale—companies can sustain dominance, anticipate competition, and even leverage cooperation for long-term success. A refreshingly clear take on strategy for business leaders and investors alike.
Outsiders
The Outsiders – What sets truly exceptional CEOs apart? William Thorndike explores eight unconventional leaders who mastered capital allocation to drive extraordinary returns. Their success defied traditional management playbooks, making this an insightful and entertaining read. However, while the stories are compelling, applying these lessons directly to valuation remains a challenge—something investors must grapple with beyond the book’s case studies.
The Intelligent Investor
The Intelligent Investor – Benjamin Graham, the father of value investing, laid the foundation for evaluating companies based on intrinsic worth rather than market hype. As Warren Buffett’s mentor, Graham introduced principles like the “margin of safety,” emphasizing long-term, disciplined investing over short-term speculation. This classic remains essential reading for anyone serious about building wealth through smart, strategic investing.
Damodaran on Valuation: Security Analysis
Damodaran on Valuation – A must-read for anyone serious about security analysis, this book by Aswath Damodaran explores distinct valuation approaches with clarity and depth. Whether you’re an investor, analyst, or finance professional, Damodaran provides the essential tools to assess a company’s worth for investment or corporate finance decisions. A true classic in the field of valuation.
Our Idols
Warren Buffett
Investor, entrepreneur and CEO of Berkshire Hathaway
“Only when the tide goes out do you discover who’s been swimming naked”
“Someone is sitting in the shade today because someone planted a tree a long time ago”
Charlie Munger
Closest partner and right-hand man of Warren Buffett
“People calculate too much and think too little”
“Invert, always invert: Turn a situation or problem upside down. Look at it backward”
“Acknowledging what you don’t know is the dawning of wisdom”
Bruce Greenwald
Professor at Columbia School of Business. Author of the book Value Investing: from Graham to Buffett and Beyond and Competition Demystified
“There are no bad days in the market. When the market is down, you’ve got bargains, and it’s lovely to think of what you are buying at low prices. When the market is up, the bargains have gone, but you are rich”
Ben Graham
Father of securities analysis
“In the short run, the market is a voting machine but in the long run it is a weighing machine”