Book report: "The Little Book of Value Investing"

[Nords]

When I think of wild-eyed high-livin' hard-partyin' good ol' crazy-money go-go boys, I think of Chris Browne of the Tweedy, Browne fund managers:

He's written this book, part of a Wiley series that started with "The Little Book That Beats the Market", to talk about Tweedy, Browne's value-investing criteria. It's no big surprise that he's a fan of Graham & Buffett (Tweedy cleared the trades on Buffett's original purchase of the Berkshire Hathaway textile mills). It's also nothing new to those who've read the other books & letters by these investors.

If you've never paid attention to value investing before then this is a good place to start-- a small 5"x8" 176-page book with wide margins, a big font, and short words.

If you're already a value-investing veteran (or skeptic), I enjoyed Browne's comments on international investing (starting in chapter 6 and subsequent pages) and on finding undervalued assets. If you think GAAP has some silly valuation rules for U.S. companies, they're even more arcane & obtuse overseas and there are twice as many undervalued assets waiting to be discovered. A lot of those cheap international assets are also U.S. companies whose expansion future lies in places like China & India.

"When the student is ready, the teacher will appear". I don't know if I finally achieved readiness with this book or if Browne explains things so clearly that it even got my attention, but he presents the best list of value-seeking criteria that I've ever read. After five years of wondering & frustration (and pestering Brewer) I think I'm finally ready to start using a set of organized value-screening search tools.

I guess my highest praise is that instead of waiting for our local library I spent real money for this book (Happy Holidays!). Note that I sing these paeans even as we've been selling off Tweedy, Browne Global Value for Powershares' International Dividend ETF. I think we've absorbed enough of his philosophy over the years to be able to handle it without paying a 1.38% expense ratio for fund bloat, high cash levels, hand-holding, & currency hedging. And I guess after TBGVX closed to new investors they have a lot of time on their hands.

TMF has also published their own review of Browne's book.

 

[lswswein]

So Nords
How different is it from the Pamplet about value investing they have on their site? Do they go into more details about picking value stocks in the book? I also won Tweedy and I always like reading their annual reports etc but they never discuss the process of picking stocks in the reports.

-h

 

[Nords]

How different is it from the Pamplet about value investing they have on their site? Do they go into more details about picking value stocks in the book?

Oh yes.

There's much more detail about evaluating a company's margins, pricing power (like Starbucks or Wal-Mart), overseas expansion opportunities, one-time hits with only temporary effect on the stock price, what's being done with the cash flow, and how the assets are carried on the books.

There's a discussion about foreign accounting rules, especially European ones which are surprisingly much more conservative than GAAP and can result in assets being carried at acquisition cost instead of marked to market. They also discuss issues with unions, pensions/healthcare, and litigation.

Chapter 15 talks about foreign accounting. U.S. companies are allowed to "keep two sets of books" by reporting one set of numbers for shareholders and another set for tax purposes. (Like accelerated depreciation for taxes.) However most European countries limit their companies to one set of books so one Swiss company was depreciating their assets at 37%-- a life expectancy of only 2.6 years. Choosing a slower depreciation rate would have greatly improved earnings (and thus dramatically lowered the company's P/E) but it would also have dramatically raised their taxes.

The point was that earnings were much better than they appeared to be to a quantitative computer stock screener, but that information had to be dug out by someone who had the time & knowledge to ask the questions.

 

[lswswein]

thanks for the details - I will add it to my amazon.com list
-h

 

[terminator]

I checked out and read this book yesterday (yes, it's that short) and agree with Nords that it's a nice intro if you have never thought about value investing before. But as someone who has been doing it for many years, I came away disappointed that it was all qualitative and basically had no quantitative information. Maybe he doesn't want to mislead, or maybe he analyzes stocks ad hoc, but I expected him to at least give a list of his screening criteria based on PE, forward PE, debt levels, cash flow, book value, ROE, etc. I wanted to see how my criteria compared to his.

Nords, if you liked this, you might want to also read "Buffetology" (written by WB's ex-DIL back in 1997 I think) as that has a lot of qualitative info that is complementary to this book and also has more of a quantitative approach.

If anyone has book suggestions for this subject that have more quantitative screening criteria, I'd be interested in hearing about them. Otherwise I'll just have to keep struggling along to the beat of my own drum . . .

 

[Nords]

Nords, if you liked this, you might want to also read "Buffetology" (written by WB's ex-DIL back in 1997 I think) as that has a lot of qualitative info that is complementary to this book and also has more of a quantitative approach.
If anyone has book suggestions for this subject that have more quantitative screening criteria, I'd be interested in hearing about them. Otherwise I'll just have to keep struggling along to the beat of my own drum . . .

I've probably read 15 of the top 16 Buffett books, and now I'm working through the book on his CEOs. I've been trying to find something that'll make me decide to rebalance out of Berkshire but I haven't found it yet. Still waiting on Alice Schroeder's biography.

I've been writing down screening criteria for the last few years, including those in Buffettology and Browne's books, and they're all starting to converge. But I think the key lies in finding the values that don't show up on the screens-- either because the database is "wrong" or because of a special situation.

I think I've wasted spent enough time cogitating on the ultimate screening tool and anything further is probably paralysis by analysis. Probably the best way to improve our stock-picking skills at this point is to stop reading and stop doing. I don't know if Buffett uses a screening tool... when he mentioned reading a listing of publicly traded companies someone protested "But there are over 27,000 of them!" and Buffett replied "Well, start with the As."

Just as soon as I get caught up on all the other things that I want to be doing...