Becoming a Bargain Hunter

In leading up to my first few research pieces I wanted to give a brief intro into a few concepts that embody a Value Investor.

“Investment is most intelligent when it is most businesslike.”- Benjamin Graham

Lets take a dive into this Philosophical concept…

As a value investor this is one of the core tenets. What this means is that you are not day trading.

It means you're not "playing the market". It goes into treating stocks as businesses not pieces of paper that you can flip in and out of. View yourself as a private owner in a business that you cant just sell out of tomorrow. View the business you own as you being a partner in the future relationship. You're an owner who believes in the future of the business and returns the business can provide over the next 5,10, 15 years.

What virtues stem from this view? Temperament, Patience, and knowledge of what you own and why own it. Being able to stick to your facts and paying attention the information on the business not the market price. This comes about through financial information released by the companies you have invested in. For instance, the main provider of my decision making comes from annual reports.

With such a simple philosophical concept understood deeply and by walking this path a bargain hunter is born. From there your journey in looking for bargains may bring you to places where they may be controversial, misunderstood, or unloved businesses today. Its up to the value investor to take the facts and look for the opportunity. If you aren't scouring the market in search of bargains you're not doing your job as a capital allocator.

"If you want to have a better performance than the crowd, you must do things differently from the crowd."- Sir John Templeton

Further, here is a brief history lesson on a great bargain hunter. Im going to give a brief summary of a chapter in "Investing the Templeton Way" by Lauren C. Templeton,Scott Phillips. The Chapter is "The First to Spot the Rising Sun".

In 1950s Sir John Templeton had started his fund. It was underperforming in the first few years. This is expected at times when you're doing things different from the broad market. In addition to that he Made what was then considered controversial investments in the 1960s. He purchased initial investments in Japanese equities for his partners/investors. again adding to the concept of doing things different.

Why? He liked the economic progress the country was making in lieu of its controversy coming off of WWII. Facts were this was a growing economy full of bargains.

There were businesses there with solid growth selling for low PE's. He was able to identify this early on. He was bold enough to make investment there despite the controversy. Moreover he held these investments for a prolonged period of time. Even when the market was not agreeing with him at the time every year. This is what it means to be a Value Investor.

Investments in Japan in the early 1960s didn’t seem to perform at first as shown in a picture below. Again to reiterate doing things differently. But through investing in businesses and keeping his conviction he was able to reap the benefits of his diligence, temperament, and patience. By 1969 his fund was ranked #1 out of 25 mutual funds. He continued to invest there. The herd didn't catch on till later. More over late 80s early 90s was the peak of the investment in Japan and by then it was widely accepted as the place to be. Sir John Templeton had exited his heavy weight there by that point in time.

Below I have included two photos to reiterate this topic. These photos were taken from "Investing the Templeton Way" by Lauren C. Templeton,Scott Phillips.

Source: Investing the Templeton Way

Moreover to express this point further here is additional information found in the appendix of "The Intelligent Investor" by Benjamin Graham. Some of the funds and investors you may recognize. This is to stress the importance of keeping an independent opinion. Sticking to the process and most of all patience!! Know about the businesses you own and let the annual reports, the facts, dictate your decisions not Mr. Market.

Source: Intelligent Investor

No performance is guarenteed. That said Ive seen enough case evidence that I do know If you are doing things right you will not mimic the returns of the market on a year to year basis.

In fact, as indicated above, you and your partners will at times endure periods of underperformance. I cant stress enough, above all, you have to stick to the process that is expected with a portfolio that is doing something different from the markets and the herd.

That in and of itself is one of the most important aspects to get across in my opinion.

I reiterate, in order to get excess returns you cant do what the market is doing. One should go the path least travelled.

This write up was done so as to prepare everyone for my next piece which is contrarian in nature but in my eyes you have do as Charlie Munger puts it "Fish where the fish are".

Also the goal is to give insight into the philosophy of Value Investing that I myself am going to do my best to uphold.