Benjamin Graham would usually invest when he perceived a company’s shares to be undervalued and was not so much concerned with the qualitative aspects of the business. He looked to invest in companies that were trading under their net asset value, where if they were to go bankrupt and be liquidated, as he had purchased shares for less than the companies’ net asset value he could almost be guaranteed to make a profit. It is more common place these days to incorporate the qualitative side into the Value Investors approach. Charlie Munger (Vice Chairman of Berkshire Hathaway) introduced this and emphasised the importance of understanding the quality of the business to Warren Buffett (Chairman and CEO of Berkshire Hathaway) and how they could greatly improve the returns of Berkshire Hathaway by doing so. Buffett and Munger like to say that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. To be a Value Investor you will need to incorporate some of the investment strategies outlined above. Fundamental Analysis plays a major role in the Value Investors approach, as they see themselves as business owners and not traders or speculators. One of Warren Buffett’s many famous quotes is to “act as though you had a lifetime investment decision card with only 20 punches on it”. Meaning, don’t rush into your investment choices and be sure that you have performed a sound analysis of the business before you commit to becoming a part owner (purchasing shares). The other strategy that is incorporated into Value Investing is to buy and hold, as long as the business is consistent with its performance and has a predictable future. This has many benefits. First it can give you a tax advantage (most cases it can be a 50% saving on tax) when you sell, as long as you have held the shares for a certain length of time (usually greater than 12 months). It also gives you more confidence and less to worry about when the market happens to overcorrect and send prices plummeting, because if you have a long term outlook you are able to ignore these short term anomalies. Value Investors will also usually consider the potential growth of a company when performing an analysis. This is needed to project the future growth prospects of a company and assists when determining the Intrinsic Value of a business. The key points and traits of a Value Investor are: to act as a business owner and understand the businesses in which they are invested; to make fundamentally sound investments in quality businesses and to have a strong understanding of the underlying value (Intrinsic Value) of the business; to invest for the long term, much the same as any business owner would and to try to ignore the sometimes irrational movement of stock prices. Some quotes by Warren Buffett that best relate to/describe the Value Investor:

1. An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business
2. Remember that the stock market is a manic-depressive
3. Always invest for the long term
4. The critical investment factor is determining the Intrinsic Value of a business and paying a fair or bargain price
5. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right
6. Be fearful when others a greedy and greedy when others are fearful
7. Unless you can watch your stock holding decline by 50% without being panic stricken, you should not be in the stock market
8. As far as you are concerned, the stock market does not exist. Ignore it
9. Buy a business, don’t rent stocks. Wide diversification is only required when investors do not understand what they are doing
10. Do not take yearly results too seriously. Instead, focus on four or five year averages