The Little Book of Value Investing by Christopher H. Browne

Published On: 02-Jan-2019

The Little Book of Value Investing by Christopher H. Browne
Comments by Kamal Gada
January 2019

In the era of fascination for growth investing particularly in India, what attracted me towards this book “The Little Book of Value Investing” by Christopher H. Browne was the curiosity to understand the age old success stories of legendary value investors like Benjamin Graham, Warren Buffet and the author of this book itself Christopher Browne. The book definitely gives a bird’s eye view of the nuances of value investing and myself being a staunch follower of various sports, leading to firming of my belief “The Form is temporary but the class is permanent” – value investing could take a while to bear fruits (underperformance could be temporary in nature) but the returns could be significant as and when they happen (the benefits could be permanent).

The book has laid down the principles of value investing in very simple words which any novice investor would be able to understand. Just as the shopper would go around various shops to pin down his desired requirements, the book lays down simple guidelines that would not only lead to selecting the right stocks but also avoid some of the stocks which would otherwise qualify as a value stock.

The key learnings for me has been the importance of the assessing the inherent value of the business (called the intrinsic value) and then applying the necessary discount to it for taking the investment decision (called the margin of safety). The various methods of arriving at the intrinsic value can be based on financial/statistical ratios (like price to book, price to earnings/ EBIDTA) or based on the appraisal method (like looking into the any M&A deals, assessing the investments made by some of the successful value investors). The margin of safety is important for riding out the bad times that companies/ businesses would inevitably encounter.

The other important aspect of value investing is one’s ability to figure out “When is a bargain not a bargain?” Some of the checks to discard the stocks which I particularly found intriguing include excessive pension liabilities or a contentious labour environment, technology risk and over obsession of the short term earnings estimates ignoring the long term potential/ problems. Upstream oil companies have not been a great bargain for me as they have displayed inability to improve the operating performance and has continuous stress on the cash-flows with high maintenance capex as well as obligations to acquire overseas expensive assets.

Lastly, the most lasting effect of this book on me is the ability to remain patient in the world of investing while swaying away from the hot and popular stocks / short term underperformance and the ability and courage to move away from the herd mentality. I can relate this to our holdings in oil marketing companies which was rewarded once they were allowed to earn reasonable return on retailing business.

The next book in line for me would be why one behaves opposite to the things discussed in this book – “The Little Book of Behavioral Investing” by James Montier.

Author Bio

Kamal Gada
Mr. Kamal Gada is a Vice President and research analyst in the equities team of the mutual fund operations of the company. He tracks the Oil & Gas, Agrochemicals and Media sectors. Kamal joined UTI AMC Ltd in 2008, prior to that he has worked in the Oil & Gas sector with India’s leading refinery and oil marketing company, Bharat Petroleum Corporation Limited in their finance department. He is a Chartered Accountant from the Institute of Chartered Accountants of India and has also cleared the Level 3 exam of the CFA program conducted by the CFA Institute, USA.