Picture Benjamin Graham in today’s world. He’s sitting at his office desk, in front of his laptop, looking to check out three-piece suits on shopping websites. He opens his favourite browser and heads over to his prefered website to buy suits. Which section of the website do you think he’ll click on first? I’m thinking–the sales section.
Benjamin Graham loves a good bargain. He always has. He’s not known as the “Father of Value Investing” for nothing, after all.
Graham’s investment philosophy was a simple one–buy a stock whose intrinsic value is higher than its market price. Graham would then hold onto the stock until a mean reversion occurred, which means that until the market price reflects the stock’s true value.
This strategy allowed Graham to buy undervalued stocks that he could invest in for the long-term. He was essentially doing what all of us try to do when we shop–buying a quality product for cheap.
In his hugely successful book, The Intelligent Investor, Benjamin Graham paints this value investing philosophy in more detail. He discusses different aspects about value investing, some of which include:
- Investor philosophy: How an investor’s emotions and biases affect his investment decisions
- Minimal debt: How companies with low levels of debt are able to boost their profitability
- Buy-and-hold investing: Why investing for the long-term decreases risks and increases returns
- Fundamental analysis: Why analysing a business’s financial statements is essential before making an investment in it
- Concentrated diversification: How the age-old adage of not putting all of one’s eggs in one basket helps reduce risks
- Margin of safety: How to invest by using the difference between the intrinsic value and market price of a stock
The Intelligent Investor is without doubt essential reading for any value investor, but you don’t need to do the hard work of trying to adapt the book’s philosophies. We have done that for you.
We have adapted Benjamin Graham’s investment philosophy for the Indian stock market in building the Bargain Buys smallcase. The smallcase comprises companies that boast of strong financial position, manageable debt and stable earnings. This is a model-based smallcase that is also diversified across segments.
Bargain Buys is ideal for the lay investor, who doesn’t have the experience to use and implement complicated investment formulae. If the goal is to invest in profitable companies that are available at cheaper valuations, then Bargain Buys is the smallcase to put your money in.
Here’s how it has performed over the long-term.