Tuesday, August 16, 2005

Value Investing

What better day to get things started than on a day when the markets were in shambles. The Dow was down 120 and the Nasdaq about 30. Worries about inflation and lackluster profits from companies such as Wal-Mart were the culprits this time.

Let me first tell you what this BLOG will be all about. I made my first trade back in 1996 when I opened an account at Charles Schwab while attending MIT in 1995. I remember reading the Wall Street Journal and trying to make quick money by trading biotech stocks which I thought had the potential to make a move once news of various clinical trials were announced. It was a hit and miss strategy at best.

Around the same time, I remember reading an article in the WSJ about a well known investor by the name of Warren Buffet who was contemplating issuing B shares in his company at $1000. The article noted the price of the A shares at around $20,000. I was flabergasted. How could shares of a company trade at such a crazy level? Who was Buffet?

A bit of research about Buffet and his company, Berkshire Hathaway, lead me to Benjamin Graham and a book by the title of Intelligent Investor. I also read a book about Buffet and his life. Graham's investment philosophy was to buy shares of companies that were trading at a discount to their Intrisnsic Value. The idea was to buy shares at a large enough Margin of Safety relative to their Inrinsic Value to ensure superior returns. Buffet adopted this philosophy and supplemented Graham's methodology with his own qualitative measures: Value Invesing at its best. This is what this BLOG is all about - trying to learn from the masterful investors of our time. Which companies are the next American Express or Coca Cola or IBM? Were Graham and Buffet simply at the right place at the right time? Or are companies such as Google the next ultimate value plays staring us in the face? What is Buffet up to these days? Who are some of the other Graham disciples and what can we learn from them?

Time to leave for my annual golf trip to Bandon Dunes. For now, I need to worry about my swing woes. I will need all the help I can get especially if the winds are blowing on the Oregon coast.