Book of Value Quotes by Anurag Sharma

The quotes from the Book of Value by Anurag Sharma are investment gems that include deep “second-level thinking”.

Careful and rigorous analysis helps investors resist the temptation to do foolish things. Good investors are capitalists — they invest on the basis of sound data and analysis, with an eye for what could go wrong.

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Intrinsic Value and Its Relationship to Margin of Safety

The purpose of estimating intrinsic value is to take advantage of mis-priced assets. Don’t get discouraged because you feel it’s difficult to determine the intrinsic value of a stock. It is not a science! It is the variables that make up your estimated intrinsic value that are more important than an exact intrinsic value number.

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Price and Value: Know the Difference

Many investors don’t differentiate between price and value. Buying stocks at bargain prices lowers your risk considerably. If you are buying stocks just because everyone else is (they are going up) then you are playing with fire. You will eventually get burned. To be a successful investor you must differentiate, and understand the relationship, between price and value.

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Quantitative vs. Qualitative Approach to Value Investing?

There is a debate between two approaches among investors: qualitative vs. quantitative. In reality, every investor adopts at least a little of both approaches; but may emphasize one or the other. The qualitative approach concentrates on the quality of the company. Emphasis is put on the company’s products, services, management, competitors, etc. A quantitative approach concentrates on the income statements, balance sheets, and cash flows, and analyzes the relationship between price and intrinsic value .

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Deep Value by Tobias Carlisle – Review & Summary

A comprehensive review and summary of Deep Value -Why Activist Investors and Other Contrarians Battle For Control of “Losing” Corporations, by Tobias E. Carlisle.
Failing businesses, poor management, and unpredictability often provide the most promising investment opportunities. Deep value offers the best risk/reward ratio for investors willing to go against intuition and what is normally accepted by the investment crowd.

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The Intelligent Investor Book Review in 30 Minutes

Benjamin Graham’s objective was to provide an investment policy book for the ordinary investor. He succeeded in putting seemingly hard concepts into terms that could be understood and, more importantly, implemented by the average investor.
The Intelligent Investor, by Benjamin Graham, is probably the most important and influential value investing book ever written. Warren Buffet described it as “by far the best book ever written on investing”.

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Investment, Speculation, Inflation, and Market History – The Intelligent Investor Book Review (Chapters 1, 2, & 3)

One of the most important and basic rules is to keep the activities of investment and speculation totally separate. Intelligent investing involves: 1) analysis of the fundamental soundness of a business 2) a calculated plan to prevent a severe loss and 3) the pursuit of a reasonable return. Speculation involves basing decisions on the market price, hoping that someone will pay more than you at a later date.

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The Defensive Investor – The Intelligent Investor Book Review (Chapters 4, 5, & 14)

The defensive investor should understand the difference between prediction (qualitative approach) and protection (quantitative or statistical approach). The risky approach is to try and predict or anticipate the future. The protection approach measures the proportion or ratios between price and relevant statistics (i.e. earnings, dividends, assets, debt, etc.).

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Mr. Market & Fluctuations – The Intelligent Investor Book Review – Chapter 8

If every investor did their research and only bought stocks with a margin of safety below the intrinsic value of the company, the market would be efficient and fairly stable. But we know that this isn’t true. The market swings wildly from day to day and takes large swings in valuation over periods of euphoria and pessimism.

Graham used a parable with an imaginary investor named Mr. Market to illustrate how an intelligent investor should take advantage of market fluctuations. This is a parable about greed and fear, price and value, and how the intelligent investor will react.

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Investment Funds & Advisors – The Intelligent Investor Book Review – Chapters 9 & 10

The most important objective of the advisor may be to save you from your own worst enemy, YOU. A good advisor will help you keep your emotions in control, especially at important moments. Instead of panic selling, are you going to be prepared to buy when prices have fallen? Instead of following the crowd, who might be buying at prices far above intrinsic value, are you going to look elsewhere for better values?

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Investment Selection – The Intelligent Investor Book Review (Chapters 11, 12, & 13)

In investment selection, it is most accurate to be able to make judgments based on past performance. The greater the amount of assumptions that have to be made about the future, the greater the possibility of misjudgment or error. Graham is adamant about not putting any importance in short term earnings. The more an analyst relies on short term results, the greater the risk, and the more due diligence that is required.

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Comparisons & Thoughts on Value – The Intelligent Investor Book Review (Chapters 16, 17, 18, & 19)

Graham urged shareholders to take an active role in being owners of the company. He thought management with good results should be rewarded, and management with poor results should be questioned and challenged.

He was particularly adamant about shareholders demanding a fair portion of their earnings returned in dividends. This is because much of the time companies squander past earnings. Just because management does a good job with current operations doesn’t mean they know the best use of excess company capital.

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Margin of Safety – Chapter 20 – The Intelligent Investor Book Review

The margin of safety for an investment is the difference between the real or fundamental value and the price you pay. The goal of the value investor is pay less (hopefully, much less) than the real value. Ben Graham called margin of safety “the secret of sound investment” and “the central concept of investment”. He also devoted a whole chapter to the concept and, I am confident, placed it last because it is the most important.

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Market Timing for Value Investors

There is a behavior gap that affects investment returns. Instead of market timing based on valuation many let their emotions cause them to make detrimental asset allocation decisions. Trying to predict whether the market is going up or down in the short term is a bad form of market timing. Valuation timing is a completely different, longer term way of thinking about the market.

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Investment Decisions Should Be Valuation-Based

Investment decisions should be valuation-based because the price you pay is the biggest determinant of your long term return on investment. All investment decisions are based on probability because no one has the ability to accurately forecast the future. Your best means of increasing the probability of higher than average returns is to make valuation-based investment decisions in your asset allocation and individual investments.

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