This month has been a bit hectic. For one, school is in full swing. While my schedule is not as hectic as other times, I still have my fair share of homework and projects to take care of. I also have to start to prepare for what I am going to do post-graduation. Secondly, I have become a regular contributor at Gurufocus.com.  I have been a regular forum participant for almost 3 years now and I thought their new writers program would allow me to gain some exposure. I’m also using Gurufocus as a place to write about individual stocks. Whether it be here or Value Investing Pro, I have tried to do my best from talking about individual stocks. For one, I like to keep my best ideas for myself.  Secondly, I find value investing to be more about the process of waiting for fat pitches than looking at every stock.

Value Investing Pro

One thing that I have gained from Gurufocus is a tick up in traffic over at Value Investing Pro. With the extra traffic, I also re-gained my motivation for blogging on a regular basis again. I was becoming a  bit unmotivated with my blogs and traffic was seriously starting to tail off.  Anyway, the extra traffic has re-motivated me to get these puppies updated on a regular basis and with that has come a surge in subscribers through RSS and my Youtube Channel. I have big plans for Value Investing Pro, which will probably happen around July of next year. I want traffic to stabilize a bit and I have some smaller projects to launch before I start launching the major fireworks.

Joel Greenblatt Week

Last week was unofficially Joel Greenblatt week. There were two great appearances which are must sees if you follow the magic formula system like I do. Check out both appearances below.

Joel Greenblatt On CNBC

Joel Greenblatt On Bloomberg

Value Investing Stocks: Where are they?

One thing I like about a rising stock market is the % gains. But, I also hate the fact bargains are a bit tougher to find. I have found a couple in the mega caps, but the true fish are in the microcap arena where most mutual funds are simply too big too fish there. While the  market’s run up is nice, I’m becoming very cautious. For one, I’m looking around my neighborhood and I honestly don’t see signs of a recovery. Secondly,  I believe the market has risen too much, too soon. If the market does fall, I’m sitting on some cash, about 25%. Not so much because I’m fearful of a falling market, but I simply haven’t found too many ideas. As a matter of fact, in the past 3 months, i have found 1 bargain that I would seriously put money into.

Warren Buffett U

A while back, and I seriously mean a while back, I started a Warren Buffett site. I simply lost motivation, but now “im feelin it”. I’m restarting things this week. So if you’re interested in Warren Buffett head on over at Warren Buffett U. I  was even going to restart the site’s Youtube Channel but uploading the same thing to two different channels becomes a hassle.  I follow Warren Buffett on a daily basis so I don;t have anything to lose. I have the domain so why not give a try for at least 3 months. If the site gains traction, I will continue updating, if it doesn’t o’well, I can’t say I didn’ t try. That’s pretty much how I got started in this online business, I throw stuff at the wall and I see what sticks.  I still have work to do their, but you get an idea of how the site will look.

Is the stock market undervalued?

Prior to the crash, I didn’t pay much attention to broad market valuations. I put more emphasis on individual holdings and try to get a range of the company’s intrinsic value and if it’s a bargain, buy. I still hold that belief, but I will admit, I take a sneak peak at market valuation every once in a while. I use two tools 1) Morningstar’s Market Valuation Graph 2) Gurufocus Total Market Cap/ GDP. I won’t go much into how these graphs are derived as their sites do that, but just simply looking at the two graphs we can see the market how quick the market became fairly valued.

Morningstar Market Valuation

Gurufocus Total Market Cap/ GDP

Where to find value stocks?

Bargains still exist, you just have to look a bit harder and be a bit of a contrarian. I recently wrote about 7 Magic Formula Health-care Stocks. I am also looking at non-magic formula stocks in that arena. Finally, a couple of Warren Buffett stocks might be undervalued if you examine his portfolio carefully. Johnson & Johnson comes to mind and I know Burlington-Northern was purchased in the $80’s and averaged down to the mid to low $60’s. And of course, there’s the ol “fish where no one is fishing” small cap arena. These puppies might be a bit more tougher to research, but bargains still exist.

Below are some great videos I have found and uploaded to the  Value Investing Pro Youtube Channel. I only upload quality stuff and try keep track of the better known fund manager/economist that have a great track record.

Warren Buffett On Ben Graham

Jim Rogers

Marc Faber

Low P/E

Thank You David Dreman. His books were the first that led me to become a value investor and I actually followed his strategy that he lays out in the book for a while. I started having problems when I bought cyclicals and value traps. Apparently, no one told me at the time that low P/E’s  in cyclicals were a bad thing.

DCF

I first learned about discounted cash flows from the Fool.com. I thought they were the holy grail of investing and especially for any value investors. Plugin some numbers, change the discount rate, and WHALA!!  I soon found myself doing the same thing as Warren Buffett. While I found nothing wrong with discounted cash flows, I always had it in the back in my mind that a change in growth rate or discount rate could change the values produced and thus, I have avoided DCF for the most part.

Magic Formula Investing

At last, a simple strategy that is endorsed by well known value investors. Only problem, no rankings and some clunkers along the way. I actually know someone doing a magic formula portfolio that is fully automated and he is outperforming the market.

Magic Formula Investing +1

My current and most successful “strategy”. I screen stocks on the magic formula list, and buy when they are trading at a discount. I do not rely on future earnings,only present cash flow. While not 100% crash proof, my results have been great and it fits my style. I do not worry what a stock is going to do, how the economy is going to look in the next X months/years, etc…

Finally, being a value investor is fun and rewarding. Is it for everyone? I don’t think so. I personally do not look at my portfolio throughout the week. I do my stock research on the weekends (usually Sunday), enter my orders , if any, Monday morning. Some people have t be looking at their portfolios throughout the day. How do I avoid my portfolio? Most of it has to do with my mind being conditioned that the magic formula works, but more importantly why it works.  As this crisis continues to unfold, I was convinced I was going to go crazy trying to decide which stocks to buy. Surprisingly, I haven’t been that active. And if you notice, Warren Buffett hasn’t been that active on te stock sides. His bets are mainly on the debt side of things.

Be greedy when other are fearful and be fearful when others are greedy

This has been a tough peice of advice to follow due to everyone running for the same exit and the mass media covering the markets around the clock. When I asked my brother if he is willing to put some money to work he respectfully declined due to all the “bad” news he has been hearing. Warren Buffett seems to have the same belief as me ( or is it vice versa?) as companies will experience a slowdown in earnings but will be fine years from now.

These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Link: http://www.charlierose.com/shows/2008/10/01/1/an-exclusive-conversation-with-warren-buffett

Seth Klarman is known as an investor who keeps a low profile while heading the Boston based  Baupost Group. When the Baupost Group establishes a sizeable position, one has to take notice. It is no coincidence the firm has averaged 20% annual returns since 1983. According to this 13G filing, Baupost Group bought 2,255,318 shares of Centerplate (CVP). I haven’t looked at Centerplate’s latest SEC Filings but I am assuming the position has to do with Centerplate looking for a buyer. I wouldn’t bet on Centerplate (CVP) without further due dilligence as Seth Klarman’s picks are tough to figure out without spending significant time on them, then again that’s why they have impressive returns.

Without a doubt Warren Buffett and Charlie Munger have provided some of the most memorable quotes in the investing arena. Not too far behind the dynamic duo are the late John Templeton and the contrarian maestro himself David Dreman. Below are four memorable quotes David Dreman has enlightened the world with.

1. “Psychology is probably the most important factor in the market – and one that is least understood.”
2. “I paraphrase Lord Rothschild: ‘The time to buy is when there’s blood on the streets.’”
3. “One of the big problems with growth investing is that we can’t estimate earnings very well. I really want to buy growth at value prices. I always look at trailing earnings when I judge stocks.”
4. “If you have good stocks and you really know them, you’ll make money if you’re patient over three years or more.”

It’s pretty hard to argue with any of the above quotes. All four quotes are only part of the solution in outperforming the market. Number four in particular is something most investors (including myself) lack, patience.  In a world where everything moves at a fast pace, its tough waiting for value stocks to rebound. Ultimately, its the patient investor who is able to wait out the storm who benefits the most when contrarian stocks rebound.