Fishing for Value

Finding valuable investments is a lot like finding a good place to fish.

Photo: Volker Lekes. Source: Pixabay

In both cases, you need to keep working at it. On its face, fishing is pretty simple: cast your lure out where the fish are biting and reel them in. In the same way, value investing is simple as well: find companies selling at a discount to their intrinsic value and buy them. A company selling below its intrinsic value offers investors a margin of safety.

But finding them is never so simple. With fishing, you have to consider the time of day, the wind, whether it has rained recently, and what kind of season it’s been this year—hot and stormy, or cool and placid. All of these affect where the fish like to hang out, and what lure they might be attracted to.

Value investing gets complicated, too. Intrinsic value is just the present value of all the money a company will deliver in the future. The concept seems pretty basic; the practice is a lot more subtle. Is the cash flow stable or volatile? Stable cash flow is worth more. How much debt does the company have on its balance sheet? Debt increases risk. How fast—and for how long–can they grow earnings? And how much experience does this management team have in producing a steady, growing earnings stream?

Source: Charles Brandes, Brandes on Value

Both fishing and investing require great patience: casting your lure out over and over again; examining company after company, year after year. But both offer great rewards, not just in what they produce, but in the process itself. You learn new things all the time!

In the 17th century Izaak Walton wrote that fishing is so pleasant that it is a reward to itself. It brings a “calmness of spirit”. Finding investment value is similar. Just get there before other anglers—and other investors—scare away all the fish!

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:22:41+00:00 August 4th, 2015|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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