ON VALUE INVESTING

“ We deﬁne value inv esting as buying d ollars for 50 ce nts.” “ There is nothing esoteric about value investing. It is simply the process of determining the value underlying a security and then buying it at a considerable discount from that value. It is really that simple. The greatest challenge is maintaining the requisite patience and discipline to buy only when prices are attractive and to sell when they are not, avoiding the short-term performanc e that engulfs most market participants.” “ Va lue investing lies a t the intersection o f economics a nd psycholog y . Economics is important because you need to understand what assets or businesses are worth. Psychology is equally important because price is the critically important component in the investment equation that determines the amount of risk and return available from any investment. Price, of course, is determined in the ﬁnancial markets, varying with the vicissitudes of sup ply and deman d for a given sec urity .” “ I’ve actually never seen people be successful over a long period of time without being value investo rs. To me, it’s sort of lik e the E = MC

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of money and investing.” “ Few are willing and able to devote sufﬁcient time and effort to become value investors, and only a fraction of those have the proper mind-set to succeed.” “ When we look a t value, we tend to lo ok at it on a very conservative basis—not mak ing optimistic forecasts many years into the future, not assuming growth, not assuming favorable cost savings, not assuming anything like that. Rather looking at what is there right now, looking backwards and saying, is that the kind of thing the company has been able to do repeatedly? Or is this a uniquely good year, and is it unlikely to be repeated? We tend to look at hard assets as much as possible.” “ Unlike speculators, who think of securities as pieces of paper that you trade, value investors evaluate securities as fractional ownership of, or debt claims on, real businesses.” “V alue investing requires deep reservoirs of patience and discipline.”

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