An accessible introduction to the proven method of value investing An ardent follower of Warren Buffett-the most high-profile value investor today-author Charles Mizrahi has long believed in the power of this proven approach. Now, with Getting Started in Value Investing, Mizrahi breaks down this successful strategy so that anyone can learn how to use it in his or her own investment endeavors. Written in a straightforward and accessible style, this book helps readers gain an …
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What is value investing? It’s the idea of buying a part of a business through public shares at a significant discount to the true value of the business.
If you studied efficient market theory in school, you are probably laughing right now . . . for that theory teaches that no one can buy any stock at a discount to its economic value. But consider that many stocks trade as much as 25 percent above and below their average price in any given year. Surely the value of a business doesn’t vary that much in 12 months.
Value investors believe that the market misprices securities about 10-15 percent of the time. If you can buy something for half its value, that should be a good deal. The challenge is to spot those mispriced situations.
Value investing has been around for a long time, but most of the earliest texts are hard for new investors to apply (such as Security Analysis by Graham and Dodd and Benjamin Graham’s The Intelligent Investor). I was pleasantly surprised to see that Mr. Mizrahi is well versed in both the original approaches to value investing and the adjustments made since then by legendary investors like Warren Buffett and Charles Munger. Mr. Mizrahi also displays a wonderful talent for making security analysis easy to understand and to apply. In the future when students of mine want to learn the basics of value investing, I will recommend this book.
I do recommend that if you decide to apply this approach that you keep in mind that almost all investors underperform the market averages over long periods of time (five years and more). You’ll have to be good at value investing to make it work. If it seems like more effort than it’s worth, you can now buy index funds that feature small cap, low P/E multiple stocks . . . the sort that have outperformed the overall market averages in the last several decades. Or you can invest along with value investors who run mutual funds . . . or even buy shares in Berkshire-Hathaway, which Buffett and Munger run.
Is value investing right for you? Yes, if you are determined to outperform the averages and are willing to do the necessary homework and stick with it. I believe that will be less than one percent of the people. After reading this book, you should have a better idea of whether you are a good candidate.
If you do decide you like the approach, you’ll need to dig into the resources that Mr. Mizrahi cites to learn more.
Let me give you a few cautions about the book:
1. The valuation method described in Chapter 9 is much simpler than what you should actually use. It’s better to use discounted cash flow valuations (which are mentioned but not described). If you want to use the test of a future P/E multiple, Mr. Mizrahi is a little generous in his approach. Many industries regularly have P/E multiples much higher and lower than the averages. Adjusting your targets for future P/E multiples to reflect where lower multiples have been the historic case is a good idea not sufficiently developed here.
2. Mr. Mizrahi is a great proponent of ROE (return on equity) as a measure of good performance. Current accounting rules and the share repurchase practices of many companies combine to make ROE not such a good measure as Mr. Mizrahi suggests. Why? Because equity is artificially low so that any earnings are seen a high return earnings.
3. Mr. Mizrahi appears to overstate the case for value investing being a way to outperform the market averages. Yes, some people do achieve that result, but there are no statistics on what percentage do and what percentage don’t. I suspect that many value investors don’t beat the averages over five year time periods.
4. Mr. Mizrahi explains the concept of economic moats around businesses that allow them to prosper relative to competitors. You should realize that most businesses are losing their moats pretty rapidly now as they face more global competitors than in the past. Only those who are already prospering in most of the countries in the world can be presumed to have good moats now . . . and those moats may erode in the future.
5. Mr. Mizrahi favors larger capitalization companies (over $10 billion in value) to evaluate for potential purchase. You won’t find the best buys in that group. Back testing shows that small capitalization companies usually do better on average.
6. Mr. Mizrahi recommends a definition for free cash flow that overstates actual cash availability. It would be better to add the cost in increased working capital to determine actual free cash flow.
7. A few of the tables Mr. Mizrahi supplies seem to have incorrect headings. Wherever you see the same heading repeated for two columns with different numbers, assume the headings are wrong and ignore those tables.
Nice work, Mr. Mizrahi!
Getting Started in Value Investing is a terrific guide for anyone studying the discipline of Value Investing. The text is also an excellent companion for experienced investors as well. The author does a excellent job explaining the Value Investing process. He presents the material in a manner that really helps the reader get in the Value Investing mindset. Regardless of investing experience and knowledge, all investors seeking better results will benefit from reading Charles Mizrahi’s book.
Value Investing is one of the most written about subjects in the finance/investing space. There are dozens of books just covering methods of Warren Buffet specifically, plus dozens of other texts on the value approach. It’s never difficult to find this kind of reading material, yet it can be difficult to discern the truly meaningful content from the vast pool of titles. That being said, there are good number of Value Investing books that pretty much contain the same information thereby conveying same message. At least, that is what I have encountered from reading scores of writings on this subject.
Essentially, after reading many Value Investing guides, I began to have the notion that if I’ve read several, I must have read them all. Yet, When I discovered Getting Started in Value Investing, I quickly recognized that it was no ordinary investing guide. The value methodology and principals remain the same, but the presentation of the material and the manner the author delivers the message is highly effective. Mr. Mizrahi has unique and wonderful writing style that is entertaining and captive, allowing the material to really “sink-in”.
Getting Started in Value Investing is not just another investing book, and it’s not just a beginner’s manual either. It engages the reader, and the flow of information is so well organized that it reads effortlessly. Mizrahi’s examples and illustrative stories train the reader’s mind to think and operate in the Value Investing mental framework. Knowing the principals and methods to Value Investing is rather worthless unless they are properly practiced- when it counts- differentiating the noise from the news, when money is at stake.
I have come across little investment literature that provides level of beneficial information received from reading Mr. Mizrahi’s work. It’s helped shape my thinking- by adopting a stronger focus on value, which I have gained through the text’s memorable examples and pep-talks.
I truly found this book to be an instrumental addition to my library. The writing and explanation are excellent, and the examples and anecdotes are highly illustrative. The book provides the necessary tools and explanation for evaluating investments. In addition, and probably most important, the book succeeds with illustrating the proper mindset and thinking needed to take action. I recommend buying a copy.
4.0 out of 5 stars
Perhaps a 5-star for the right reader
It is hard for me to rate this book. Most of the material was a review for me from my previous readings. Much of it was too basic to be of any use.
4.0 out of 5 stars
Do Not Let The Cover Fool You
As in do not judge a book by its cover, this is another example of why. Though pitched to novices on the value investing process, it is much more, and value can be obtained even…
Not many seniors in highschool enjoy reading books on anything; this book is loved by any person who has read a small portion of it! In “Getting Started in Value Investing,” Charles Mizrahi is able to grab the reader’s undivided attention, and the reader is also able to use the book as a reference. I am head of a investment club in school, and many of us in the group have read many books on investing and the stock market. “Getting Started in Value Investing” was definitely the most popular book in the club. It teaches a person things they would not be able to learn in any other place, and that you would never think about.
The book explains that the best investor is not the one who checks his blackberry every ten minutes to see how their stock is doing! One just needs to abide by a few simple rules, and then sit back! Some of the simple rules: You must make sure there is a margin between what you buy the stock at and what the real price is. You learn that you stick with a “great company,” and that management is very important to a great company. You also learn the basics of financial statements and the importantce of reading full annual reports (including the small print).
In the library of my school we carry a copy of this great book. At age 17, I can tell you personally this book is easy to read. Everyone should have this book.
4.0 out of 5 stars
A Great Starting Point
Value investing has proven time and time again that it is the most infallible method to build up one’s net worth. This type of investing disallows any “get-rich-quick” schemes.
5.0 out of 5 stars
Good book, but…
I would have like more formulas, i.e. ROE, ROI, ect. vice the common sense nature of the book.
5.0 out of 5 stars
Fantastic Book
Even if you already know a bit about investing this is a good read. Well written and common sense based. This and Rule #1 are the two best investing books I’ve read.
3.0 out of 5 stars
A Good Book for beginners.
This is a very good book for beginning value investors. It gives a very good overview of investing and teaches what value investing really is and the differance between investing…
5.0 out of 5 stars
Very Helpful!
Hands-on book, practical advice, easy-to-follow…
While this book is easy to understand, what you get out of it is invaluable – that is the kind of book I like.
5.0 out of 5 stars
Good Value
In these tough times Charles Mizrahi gives us a stark reminder of what a stock actually is. It is part ownership of a company and you should treat it as if it were your own.
5.0 out of 5 stars
If you can’t own a factory, own a company.
The author’s purpose was to teach a layman how to choose a company, based on its accounts.
Inicially he explains why this is the best way to buy a share.
5.0 out of 5 stars
The Best Book for the Beginning Value Investor
As an avid reader of dozens of value investing books, from Benjamin Graham’s “Security Analysis” to Marry Buffett’s “Buffettology”, and Phil Town’s “Rule #1”, I have to say that I…