classic value investors | investors

INVESTMENT STRATEGY

Our objective is to follow the principles of value investing and to invest in businesses with good fundamentals.

VALUE INVESTING

invesquote1 As value investors, we seek opportunities that are available at times when stocks are temporarily priced below what they are actually worth. Because prices tend to return to their true values over the long term, this investment style can produce favorable results for patient investors.

WHY MIGHT A STOCK BE SELLING FOR LESS THAN WHAT IT IS WORTH?

There is a bear market, and the majority of investors are fearful.

There is an industry-wide recession, and companies within a particular industry
lack a favorable outlook.

There is negative publicity, or events arise that are specific to a company such as lawsuits or the failure to meet quarterly estimates.

All of these factors are examples of effects on stock prices based on a short-term outlook which may not necessarily affect the long-term prosperity of a particular business. If we believe that the long-term business will not be affected by these events, and the price of its stock is temporarily low, we buy it with the intention of selling when the price recovers, which may take months or even years.

WHAT MAKES A BUSINESS A GOOD BUSINESS? investwus_quote2

Businesses that we consider to be good are businesses that are very profitable, earn high returns on capital, and possess competitive advantages, also known as moats, that protect them from competitors.

Examples of moats:

Intangible assets, such as brands
- A company with a respected brand name can charge more for its products than moat

a company without one.

High switching costs
- When a customer switches to a different product or service, that customer will incur a cost that could be in the form of money, time or energy.
-Example: Switching from one bank to another carries high switching costs because it is inconvenient and time-consuming.

Network effects
- As the number of users increases, the value of a service or product increases.
-Example: eBay – More buyers choose to use eBay when there are more sellers offering a greater selection of merchandise, and more sellers are attracted to eBay when there are more buyers to sell to. Established networks are difficult to duplicate by competitors.

Cost advantages
-When a company has a low cost structure, it can undercut its competitors and still make a profit. This is particularly important in price competitive industries. -Example: Southwest is a low-cost provider in the airline industry, which is price-sensitive.