Learning From the Best: A Pantheon of Value Investors
At Dorfman Value Investments we are inspired by a tradition of value investing that goes back for decades, and has produced some of the greatest investors in history. Here we highlight four of these stellar investors, and something we have learned from each.
Graham (1894-1976), a Columbia University professor and hedge fund manager, is widely considered the father of value investing. His ideas are summarized in two classic books, Security Analysis (with David Dodd) and The Intelligent Investor. He believed it is possible to calculate the intrinsic value of a stock based on its earnings, revenue and book value (corporate net worth). The stock’s price orbits the intrinsic value like a planet orbiting the sun, sometimes veering higher and sometimes lower. In the long run, the intrinsic value acts as a center of gravity, and the stock tends to revert toward it.
From Graham we learned to prefer stocks that sell for modest multiples of earnings (low price/earnings ratios) and that have strong balance sheets.
Sir John Templeton
Sir John (1912-2008) founded and ran Templeton Growth Fund, one of the most successful value funds in history. He believed in scouring the entire world for bargains, rather than limiting the search to the United States.
Following his example, we have always included international stocks in our portfolios.
Neff (1931-present), the longtime manager of the Vanguard Windsor Fund, was an expert contrarian investor, with a strong preference for buying good stocks on bad news.
We have incorporated Neff’s contrarian streak in our thinking, and in our stock selection process.
Buffett (1930-present), the CEO of Berkshire Hathaway, is widely considered the greatest active investor. His adage, “Be fearful when others are greedy, and greedy when others are fearful” is wisdom we try to take to heart. As one example, he saw great opportunities in U.S. stocks in 2008, a time when panic and pessimism were widespread.
From Buffett we have tried to learn one of the most difficult of lessons, the proper balance of courage and caution.