Wealth Accumulated

By D J Thomas, a large-cap stock market value investor and financial writer

Book review

Fundamental Analysis, Value Investing, and Growth Investing

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I’ve just finished listening to Fundamental Analysis, Value Investing, and Growth Investing by Roger Lowenstein and Janet Lowe.

Lowe has written books on Graham, Munger, Buffet, and a host of successful investors over the years.

Lowenstein is a prolific writer and financial journalist who knows a thing or two about financial markets.

He also writes a Substack.

Two halves of the same book

I really like how the book is split into two halves.

The first half narrates how the inventor of value investing – Benjamin Graham – came to his approach, what drove his ambition to seek wealth, and what Walter Schloss described as ‘a straightforward man with a quick, brilliant mind’

Impressively there is the revelation that Graham advocated making money from stocks the way that speaks to you, even if that means using a method that is not value investing:

Do those things as an analyst that you know you can do well, and only those things. If you can really beat the market, by charts, by astrology or by some rare and valuable gift of your own then that’s the row you should hoe

Benjamin Graham

Naturally, I’m drawn to the gardening reference Graham makes here.

Lowenstein and Lowe take us on a superb journey with insights about the father of value investing I’ve not come across before.

The second half: fundamental Analysis, value investing, and growth investing

The second half will appeal to the student of the value approach; it’s awash with lessons on how to conduct balance sheet analysis.

You will benefit from a pen and paper.

The authors also compare the differences between the value approach and growth investing, drawing from the experiences of well-regarded growth investors.

That’s the only growth rate that rally counts: earnings

Peter Lynch

The comparison with growth investing is extremely useful because it’s an approach that is just as prevalent in financial markets today as the value approach is.

Net current assets, net cash, intangible assets, growth rates in earnings, ROIC, revenue, and book values – it’s all in there. Lowenstein and Lowe pack in enough detail to get you well up to speed on the value and growth approaches.

(An investor) should think about the world in which he lives rather than to analyse numbers from a balance sheet or income statement

T Rowe Price

Find an investing style that works for you, but value wins out.

The main thread throughout the book is the concept of a margin of safety and mercifully the authors provide numerous examples of how to calculate it and why it’s such a central tenet of the value approach.

This and the fact that Lowenstein and Lowe cover a vast amount of ground from a value and growth investing perspective makes it worth a listen – it’s currently only available as a CD or on Audible.

In the end, the authors have a clear preference for the value approach, and one of their gifts is a clear description of what a value investing model looks like:

The value investing style produces a low cost, low maintenance investment portfolio. But investors should not think of it as a cookbook approach to buying and selling stocks. A value investor typically looks at numbers and plays with a few formulas but no mysterious maths tricks are necessary. As taught by Benjamin Graham, value investing is more of a philosophy than a technique. It is an approach, an attitude, a style.

Roger Lowenstein and Janet Lowe

Fundamentals are about noticing that it is raining today

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I’m in a perpetual state of scholarship when it comes to financial markets and used to suffer from a little snobbery: I used to be naive enough to think that traders, as opposed to investors, couldn’t teach me anything about value investing or fundamentals.

That is until I started listening to Hedge Fund Market Wizards by Jack Schwager.

Here’s a quote from one of Jack’s interviewees Colm O’Shea, founder and Chief Investment Officer of COMAC Capital, a global macro hedge fund trader based out of London.

Fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today. The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened; an ongoing deep recession that made it inevitable that the UK would not maintain the high interest rates required by remaining in the ERM. Afterward eveyone said ‘that was incredibly obvious’. Most of the great trades are incredibly obvious.

Colm O’Shea

For me, that first line ‘fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today‘ is extremely powerful because it focuses the mind on the now (common sense) rather than the later (speculation).

As necessary as it is to listen to the talking heads of the mainstream financial press in order to avoid what the market is doing, resisting the urge to get drawn into their incessant predictions can become tiresome.

Like the Dementors from the Prisoner of Azkaban, the majority of MSM financial jockeys are relentless soul-suckers:

Dementors are among the foulest creatures that walk this earth. They infest the darkest, filthiest places, they glory in decay and despair, they drain peace, hope, and happiness out of the air around them… Get too near a Dementor and every good feeling, every happy memory will be sucked out of you. If it can, the Dementor will feed on you long enough to reduce you to something like itself… soulless and evil. You will be left with nothing but the worst experiences of your life, and you will just be an empty shell that lost its soul

Remus Lupin

My disdain for them is self-evident.

So in order to combat their vampire tendencies, focus on the fundamentals just like O’Shea preaches, and replenish your mind body, and soul with a committed behavioural finance practice as an antidote for having to share the same digital space as these creatures of the night.

James Montier on investment research

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I’m reading listening to The Little Book of Behavioral Investing, by James Montier choc full with numerous tidbits of practical advice for even the most seasoned of investors.

Here’s what he says in regard to investment research:

We should do our investment research when we are in a cold, rational state, and when nothing much is happening in the markets. And then pre-commit to following our own analysis and prepared action steps.

James Montier

By pre-commit, Montier is referring to what John Templeton used to do to remain faithful to his own investment research; by placing buy orders with his broker from a pre-determined list of stocks researched during a bull market.

I must admit that takes guts, especially when the market is selling off and everyone is heading for the exits.

Placing buy orders would take a lot of the sting out of the emotional turmoil involved in such a cold-blooded approach.

But if we are to learn from past masters and emulate their genius then there really is no choice.

Pre-commit, or succumb to the emotionality of the markets.

The best book on investing ever written

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It’s a pretty bold statement: the best book ever written on stock market investing.

Twitter lists of top 10 books on investing, finance, or whichever subject catches my wandering attention, and buying the titles that have a habit of appearing most often is my preferred method of book shopping.

So when I do muster up the minerals to write a review, it means I’ve found a book so compelling that I have to share it with you.

Mercifully I can save you the hassle of trawling through the rest of today’s article and just put it out there: you need to get a copy of The Intelligent Investor by Benjamin Graham.

This book is exceptional, especially if you:

  • are a bit lazy like me
  • want to understand the basis of my personal investment style
  • want the simplest low-risk and profitable investment strategy that you could ever find

That last one is a lie.

The simplest low-risk and profitable stock market investment strategy is to purchase a low-cost tracker fund every month from your wages or as a lump sum – depending on your wealth status – and keep purchasing it then leave it for 40 years.

Set and forget.

I want more CONTROL than that though, don’t you?

But not too much; remember we’re a little lazy. And that’s okay.

Don’t you want to make sense of the stock market that most people view as a giant casino?

Spoiler: the stock market IS a giant casino backed by trillions of dollars made up out of thin air.

But that’s an article for another time.

Here’s why The Intelligent Investor by Benjamin Graham is the best stock market investing book of all time

The investor’s chief problem – and even his worst enemy – is likely to be himself

Benjamin Graham

There is enough quote-worthy wisdom within the pages of The Intelligent Investor to fill a beer barrel.

It’s superb for the occasional tweet/social media post when you’re pushed for time to create content.

See what I mean? Even if you may not know what the margin of safety is. Chill.

Downsides?

It was written in 1949 with 1949 language.

It’s author, Benjamin Graham, was not only known as a superb mentor but also for his intellectual acumen.

He would famously quote passages from Cicero.

From memory.

But it’s well worth the effort to get to grips with a transformative investment style that has helped professional fund managers and the general public, you’ll see.

Among the opulence of Graham’s guidance is his stated aim: to appeal to EVERYBODY, regardless of your station in life or financial literacy.

From the local parish priest to the multi-billion dollar fund manager.

Oh, and Graham’s strategies have stood the test of time since the book was first published in 1949.

It works. It still works. And it will continue to work, especially in developed Western financial markets.

The secret sauce of the value investing approach that Graham pioneered is a strategy for your lifetime and those of your grandchildren.

One strategy in particular called the relatively unpopular large company is a profitable, low-risk, value investing strategy that I use to this day with great success.

It appeals to both the lazy and risk-taker in me.

Perhaps it can for you.

These characteristics are suited to the value investing approach: buy stocks when they’re cheap, and sell them when they’re overvalued.

Do nothing in between.

The relatively unpopular large company

This investing strategy is about as basic and low maintenance as it gets.

You’re not asked to pour over financial statements, spend hours interpreting breaking news items from the so-called financial media or pull yourself away from the golf course.

Trigger warning: I’m assuming that you play golf, drive a Volvo, and own a Labrador.

If you do then you’re winning at life.

The relatively unpopular large company is a paint-by-numbers strategy:

  • Buy only large-cap stocks
  • Buy them when they are experiencing a period of temporary unpopularity
  • Make sure you buy enough to diversify your portfolio

That’s it.

What’s more, there are different types of value investing approaches for you to choose from if you don’t like this one.

If you feel a more thorough approach to investing is your bag, then there’s one in there for you.

It just depends on how much time you’d like to spend away from the 18th hole.