Value Investing from Stocks to all Asset Classes

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By Sankaran Naren
Chief Investment Officer (CIO)
April 2nd, 2014
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Value investing, as conceptualized by Benjamin Graham in the 1930's, has been one of the most successful investing techniques over the last century and often considered the holy grail of investing. This technique essentially wants investors to buy stocks at a discount to their intrinsic value, and sell them at a neat profit. While a number of variants of this technique have been created, the essence of all these variants is the same.


The beauty of this technique lies in the simplicity of its understanding and its widespread and successful applications across asset classes.


Let us dig deep a little to understand what makes value investing successful. Value investing is successful because it attempts to handicap unknown risks related to an investment along with keeping a sharp focus on price of the asset under consideration. There is a famous saying in the financial markets, Price is what you buy and Value is what you get”.


If you take an asset class like debt, Value investing would want you keep a keen eye at high interest rates. For example, over the last year, when yields on government securities (G-Sec) were in the range of 7.5%, most investors took the bait. However, when the yield went up to about 9%, only value investors saw the advantage and invested.


Just like value investing in debt, in case of real estate, value investors will invest when rental yields on real estate are high, and will sell when rental yields are low.


Now let’s consider equity investing.  The sharp decline in the market in August 2013 offered a value investing opportunity. Similarly, the under-performance of small and mid-caps over a long period of time led to another opportunity for value investors; the last quarter of 2013 proved this when value stocks performed.


Let me bring to light two value investing opportunities:


The first one is Public Sector Undertaking (PSU) stocks. When people hear about PSUs, instantly airline companies or telecom companies, ring a bell. While PSUs in these particular sectors face intense competition, most of the PSU companies across the spectrum have the advantage of operating in a monopoly environment. There are many PSUs which are leaders in different sectors, have clean balance sheets, good return ratios and are available at low valuations thereby providing a value investing opportunity.


The second opportunity is long term government securities. With interest rates expected to fall, investing in long term government securities offers value investing opportunity. Mutual funds offer debt schemes that invest in these securities (income funds, G-Sec funds, etc.)


The intent of this blog is to bring to notice value investing opportunities present in the market. The moot idea has always been – invest correctly!

 

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