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Friday 6 April 2012

Guru Speak: Tenets for Value Investing by James Montier

I am just beginning to read James Montier's extremely acclaimed book Value Investing: Tools and Techniques for Intelligent Investment, so thought would share some of his thoughts that I had read in 2010. Important to note that how he has adapted his views on investing after 2008.

Tenet I : Value, Value, Value - Value investing is the only safety first approach I have come across.By puttig the margin of safety concept at the heart of the process, the value approach minimizes the risk of overpaying for the hope of growth.

Tenet II : Be Contrarion - Sir John Templeton once said that "It is impossible to produce superior performance unless you do something different from the majority".

Tenet III : Be Patient - Patience is integral to value approach on many levels, for waiting for the fat pitch, to dealing with the value manager's curse of being too early.

Tenet IV : Be Unconstrained - While pigeon-holing and labelling are fashionable, I am far from convinced that they aid investment. Surely, I should be free to exploit value opportunities wherever they may occur.

Tenet V : Don't Forecast - We have to find a better way of investing than relying upon our seriously flawed ability to soothsay.

Tenet VI : Cycles Matter - As Howard Marks puts it, we can't predict but we can prepare. An awareness of the economic, credit and sentiment cycles can help with investment.

Tenet VII : History Matters - The four most dangerous words in investing are "This time its different". A knowledge of history and context can help avoid blunders of the past.

Tenet VIII : Be Skeptical - One of my heroes said "Blind faith in anything will get you killed". Learning to question what you are told and developing critical thinking skills are vital to long-term success and survival.

Tenet IX : Be top-down and bottom-up - One of the key lessons from the last year (2008) is that both top-down and bottom-up viewpoints matter. Neither has a monopoly on insight.


  1. Hi Abhishek,

    I too thought as a purist in value investing, macro environment doesn't matter. However, slowly I am starting to realize that at least getting "sense" of how things are changing in economy or sentiments does help! So I kind of agree that "cycle matters", unless ofcourse one has Buffet like skills of picking great "buy and hold forever" businesses and ultra long term outlook.

    How do you find the book?

    Best Regards
    Dhwanil Desai

    1. One thing about Buffet that most of us don't really appreciate is that he has become a buy-and-hold-forever guy after he had accumulated a huge amount of capital. Most of us are not in that stage. Buffet in his early days made his money in arbitrage and medium term (1-2) year investments, with very high focus on cigar-butts.

      If you look at his portfolio picks over the years you will see what I mean. In fact, his investment in Berkshire was a cigar butt type investment.

      The problem however, with macro economics, is very few have the ability to call it correctly. In fact, I can understand macro the picture fairly well, and not well enough to put my money on it. So, back to square one :-)

      So, for a macro call, I only look at the Sensex PE as a guideline. The moment it goes above 22, warning bells start to ring in my ears. Above 25, its time to say goodbye to most stocks and fall in love with bank FDs. Similarly, Sensex PE of 12 or lower means you start buying big time. And less than 10 means you beg-borrow-steal and buy stocks!!!