A RARE AND impressive addition to the value investing back catalogue, Baillie Gifford investment manager Andrew Hunt shares his thoughts on the evolution of the strategy as well as providing some practical updates.
Value investing has changed little since it was first outlined in the 1930s, so making a meaningful contribution to work produced by Wall Street legend Ben Graham is usually difficult.
Most of the time, investors are better off referring to the original, Ben Graham?s 1949 classic The Intelligent Investor and the earlier and weightier Security Analysis.
Hunt manages to cover the old but all-important value concepts like margin of safety, Mr Market and the ?invest like an owner? mantra while at the same time updating these ideas based on years of experience of applying the ideas in practice.
Of particular interest is the emphasis on behaviour and the psychology required by investors.
The contrarian mindset associated with value investing is outlined in Graham?s books and Hunt delves deeper into behavioural economics and psychology to help explain where the strategy can sometimes go wrong.
?Successful investing is at least as much to do with deciding what to pass up on as what to actually buy.
?Today?s investors face a rapidly changing and extremely volatile landscape in which success rates are brutally low. Developing the right mindset is not only necessary to help you improve, but to avoid the cataclysmic disasters that periodically wipe out so many.?
To back up these points, Hunt covers off topics like contrarianism, ?crisis investing?, ?outcome bias?, dealing with complexity and the often neglected art of knowing when to sell.
?When Ben Graham constructed his brilliant theory of value investing almost a century ago, the world was a very different place,? Hunt writes.
?In the decades since, investors have benefited from enormous technological advances, the ability to back-test investment approaches, the records and experiences of super-investors, behavioural finance theory, greater access to information and computing power, and the rise of international investing and emerging markets.
?Today we know far more and we have far more choices. Surely investors can do better now than in Graham?s time.?
As well as excursions into the philosophical and psychological side of investing, there is plenty of practical advice. One of particular interest is a cash flow metric describes by Hunt as ?shareholder yield?, a measure which overcomes a lot of the complexity of free cash flow.