Thursday, February 28, 2008

Revisiting ideas behind true value

The supply of truly good ideas in investing is limited. The number of original ideas is even smaller.

This helps to explain why so many investment books are much the same. Those books still keep coming in a continuing flood and this reflects hyperactive, and somewhat annoying, marketing by publishers, rather than any great gush of new ideas on investing.

However, this is not wholly unhealthy.

There may be only a few truly good ideas in investing but they are difficult to explain. They also need to be reinterpreted for new eras.

And value investing has perhaps a stronger and more coherent set of ideas than any other. Many of its practitioners behave almost as protectors of a holy flame. Here, then, is a set of ideas that dates back at least to the 1930s, to which a committed core of value investors strongly adhere.

To beat the market, you must find stocks that are too cheap. To do this, you must look at the stock not as a security but as a share in a company, which is, in turn, a bundle of incomeproducing assets.

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