Today we will talk about the value investing, Warren Buffett’s investment strategy.
What is a value investing? How do we do it?,We will talk about yesterday, today and even tomorrow of value investment. Can we make the value investing? We will talk about that. When you start researching before investing in a stock market, I can say that the probability of encountering a name called Warren Buffett is approximately 200%. The person who makes the most money from the stock market and markets in the world. The third richest person in the world right now. Definitely the most famous name in the market world. When you start investing, you will of course meet the name Warren Buffett. Today, we will talk about Warren Buffet’s investment style which is value investing. We can divide the value investment into three parts. One of them is the part of Ben Graham. Another one is the part of Warren Buffet. And one of them is in the section we are in right now. The person who reveals the value investment system is not Warren Buffett. The person who reveals the value investment system is Ben Graham,,the author of the book “The Intelligent Investor”,,one of the most important books in the history of the world,,one of the most important financial books in the history of the world. In the meantime, let me give a detail like this, I would definitely recommend the book “The Intelligent Investor”. An extremely useful and beautiful book for people who want to invest. I think it should be read absolutely. Value investment unearthed by Mr. The Intelligent Investor Ben Graham,Ben Graham has a very simple, incredibly simple logic. Ben Graham says that,I don’t know what a company will do in the short term. The company can go up, the company can go down, the company can roll over, make a dead cat jump. The company can do everything. But I don’t know where a stock will go in the short term, he says. And then he adds, I don’t know where this will go in the short term. but he thinks that a company has a tangible asset,and that the product it produces has a tangible value. So, if I had to sell it suddenly,,if you had to sell everything,,imagine that you are selling everything of a company. After that, you deduct the debt of the company because you sell it,,you deduct all of its debt.
You deduct company’s short-term, long-term debt. And what remains for you after that?,This is 1.0 understanding of the value investment that Ben Graham first revealed. We sell everything, we sell everything we have. Then we subtract the debts. And whatever we have, this is actually our margin of safety. The margin of safety also appears here first. Let us call it Ben Graham “Value Investment 1.0”. Value Investment 1.0 speaks of this. When you look at the life of Ben Graham, you realize that; Ben Graham was not very interested in what companies do. People who work with Ben Graham also say that. He was definitely not interested in what companies do. He was just looking at the margin of security that came out of this calculation. He was looking at whether the company was cheap. He was not looking at anything else. This is what we do in “Value Investment 1.0”,Well, let’s talk about the person who changed the value investment history and even the stock market, the market history; Warren Buffet. As Warren Buffet enters the market stage,,we are actually reaching a system called “Value Investment 2.0”. The logic of Value Investment 2.0 is very simple. Find a superior company in the market, even better if it does it alone. And pay a reasonable price for it. This is the simplest start of Value Investment 2.0. Since the company market was dominant,,Warren Buffett also had the thought that he would save even more money as the company would rise. He explains it as follows, the more guaranteed the future profit,,the higher the price you will pay today. Of course, we should not only think of it as the company that dominates the market,,the company that stands alone in the market. There is also a situation in the investment system made by Warren Buffett;,Unlike Ben Graham, Warren Buffett does not look at tangible points. He also looks at intangible points. The point he meant from the market leader is that;,If you look at all the purchases made by Warren Buffett, if you look at stock purchases,,I don’t want to name it there, but of course,I will say soda firm, you all already know. While Warren Buffett is investing in soda firm,,he actually looks at his intangible assets in addition to tangible assets, while investing in value. Is this company a market leader? Yes. Will this company be the market leader? Yes. Will this company continue? Will it make its rise? Yes. Warren Buffett says; okay, then I invest in it. Of course, this does not mean that,it will certainly rise only after seeing the soda company. Warren Buffett is one of the most disciplined,working people in world history. As far as he wrote in his biographies, we are talking about a person reading between 600 and 1000 pages a day. When he says just looking “intangible” to a company; he doesn’t look like “this company rises, this soda business really incredible.”,He reads everything he can read. He gets all the information he can get. And he tries to gain an advantage from any information he can get. So the abstract concepts we mentioned here in Value Investment 2.0 are not something we can explain very simply. It is a concept that has an incredible effort and an incredible response. Before we get to the value investment today, let’s talk about a few more points about value investment. First of all; we said the margin of safety, so that is Ben Graham’s part. Let’s also say the Warren Buffett part of the margin of safety. Security Margin, according to Warren Buffett; (now I’m going to give some mathematical operation here but),I guess I’ll write that operation right there. 1 – ((Current price of the stock) / (Price of the stock you expected)),Then, you can find security margin. So, for example, if the current price of the stock is 20 liras,for example, consider the price of the stock as 20 liras right now. If you think this stock will go up to 30 lira, the Security Margin for you is 50%. If you look at the history of purchases made by Warren Buffett,Warren Buffett mostly kept the Security Margin by 50%. In other words, he always wanted to invest 50% or more,while trying to buy with a security margin. What are the things to consider when making a value investment?,There are 3 items you have to pay attention to. 1. It should definitely have a high dividend. Dividends are very important in value investment. We have already talked about dividend yields. Dividends were actually an insurance of our companies. So no matter how much it fell, we mentioned that his dividend will increase. For this reason, dividends are very important to us. There must be a dividend. 2. It should be low market to book value ratio. We want the market value and book value,to be at low level. It is important for us to be at low levels. The market value / book value gives the investor an idea of how much money he will make if he converts the stock into cash. We have a certain range of it, no matter how low it is. It has to be in a certain range and low. If it is low in the range we are looking for, it is so suitable for us. 3. Low price-earnings ratio. The price/earnings ratio should be low. Now, what we mean by low is normally in most books (including this book),It is said that P/E should be under 10. However, due to the 24% interest rates in our country at the moment,,what we can call low P/E at the moment is,4 P/E – 5P/E levels. For this reason, at that moment I can not say anything clear,,also you have noticed in “The market value/ book value.” Of course, they have clear provisions. But as things change, the market changes,,the market conjuncture changes, so their value also decreases. As I said, while we are looking for 4 P/E,,4 P/E is a level we can call,incredible under a normal condition. So we have to look at these 3 items first. 1. High Dividend Yield 2. Low Market Value/Book Value Ratio 3. Low Price/Earnings Ratio,We talked about the Value Investment 1.0 initiated by Ben Graham. We also mentioned the Value Investment 2.0, which Warren Buffett continued and even made legendary. But let’s also look at Value Investment 3.0, which was created by Warren Buffett. Why is there a Value Investment 3.0?,Actually, there is a very simple explanation for this. 10 years ago, when you look at the 4 biggest companies in the world,3 of these companies were energy companies and 1 was a giant industrial company. If you are looking at the moment, you are faced with;,4 of them, yes indeed, 4 of them are completely computer based companies. Facebook, Amazon, Google and Microsoft. For this reason, we cannot see much of the “tangible” assets that Ben Graham and Warren Buffett created. Because this companies don’t have really tangible assets. Of course they have. But these are not tangible assets, as we can calculate industrial companies, energy companies. Now, in these new generation companies, we have a lot of problems. when you invest in a company’s value,,you could calculate that company’s assets and market share in the company more or less. Let’s go through the,same soda company,,you can calculate the existence in someway or other. You can also calculate with the method of Ben Graham, you can also calculate with the method developed by Warren Buffett. But you can no longer fully reveal the existence of a company,issued by simply writing a code and,a company issued by pressing an ‘Enter’ key. We also saw this in the 2000 dot-com crisis. We saw many of the shares that we called as internet balloons,But now history is with them. They are the big companies now. And Warren Buffett’s Value Investment 2.0 system no longer fully provides it. When you look at the Value Investment 3.0 system,,Warren Buffett has 2-3 recommendations on this issue. Let’s talk about them too. Warren Buffet wants you to do this first;,As in Value Investment 2.0, you need to choose companies with clear competition and advantages. What is this? This is Apple. What is this? This is Amazon. This is also Facebook. So you have to choose companies like this. You need to choose companies that are advantageous in the net market. Warren Buffett also talks about choosing a small market share,,a huge availability market and companies with competitive advantage. He says you should choose such companies. So what are you not supposed to do?,Warren Buffett talks about 2 items. 1. A growing sector does not mean a profitable sector. We are making this mistake too much. Since this company will grow, this company will grow like this,,his company will grow like that, it doesn’t mean that the company will always be profitable. There is no guarantee that the company will be profitable. Therefore, a growing company is not always equal to a profitable company. Before you buy a company’s P/E or Market Value/Book Value is low, you need to take a look at this;,has this company left its good days behind?,So is the company’s advantageous point left behind? You will look at it. If the company is advantageous or has good days left, buying that company will of course also cause you harm in the long run. Warren Buffett mentions that you have to look at that. Warren Buffett is famous for not investing in sectors he doesn’t know. He has repeatedly mentioned in his interviews that he did not invest in sectors he did not know in his statements. Currently, however, the company that Warren Buffett owns the most shares; Apple. Recently, they invested in Amazon. Although he says “I didn’t do it.” , anybody in the company owned by Warren Buffett is,equivalent to Warren Buffet’s investment in Amazon. It cannot be expected to understand the telephone sector by an 88-year-old person,or understand what Amazon is doing,,which doesn’t make much sense. This is the reason for the Value Investment 3.0 we are talking about. Everything is changing very quickly. The whole market, everything. Say algorobots if you want. If you want, say new sectors. But everything changes very quickly. To keep up with this, Warren Buffett is actually,giving up the most famous Value Investment 2.0 we’ve mentioned. And the Value Investment 3.0 comes. If you say, are the results very good? Unfortunately not. Although we are talking about an investment system called Value Investment 3.0,one of the most discussed issues in America at the moment is,,the Value Investment still alive. Because when you look at the last 15 year,we see that Berkshire Hathaway, Warren Buffett, achieved an increase of 215%,,but the S&P 500 achieved an increase of 512%. The Value Investment has unfortunately,not been able to earn as much as expected,and good as well as good in the past 15 years. For this reason, the object at issue in America at the moment;,the topic of the Value Investment still alive or no. Of course we can discuss this in the comments section. We can talk in the comments section. I think it still has some time. However, with the emergence of technology companies,,in any case,the legendary company has,a little trouble, we have to accept this. They have some problems. Well let’s continue on our business. Is it possible to make the Value Investments in Turkey?,Yes, it is. Because when you look at the first 11 biggest companies in Turkey,when you look at the top 10 companies in Turkey,,just as we mentioned in America, 10 years ago,there are still a lot of companies like big industrial companies, big energy companies. So we’re still able to make the Value Investing in Turkey. When technology companies change this ranking,when technology companies start to be in the top 10,,maybe after that, we should continue with the Value Investment 3.0. Perhaps we should also participate in the argument on the Value Investment in America is still alive. But now,,we will continue to make Value Investing. As I mentioned about value investment,You have to look at the Security Margin. You need to look at the Margin of Security. High dividend yield, you need to look at Market Value / Book Value (ratio). You have to look at the price / earnings ratio. But of course I have to underline that; for example, you have to spend years to find,what we call the Expected Value,,which I gave in the calculation of Security Margin. You have to try many times. You have to make mistakes many times. You have to make mistakes many times. And then you can find. It looks like a very simple what Warren Buffett did. You really noticed it. Very simple. But finding that expected value is already important. It is important to find out where that expected stock will go. After that, of course it’s very easy. So everything is very easy after you do it. Therefore, you have to research a lot. You have to look too much. You have to read a lot. f you do these, Value Investment is definitely one of the most successful and accurate investment systems in the market. So what do you think about the Value Investment?,Do you make Value investing? Is there anything that I missed about Value Investing?,Or do you really think Value Investment dies, as discussed in America?,Let’s discuss this topic in the comments section as usual. That’s all I have to say about Value Investment.