A reader once emailed me asking why I, a value investor, would hold my summer conference in Vail, an expensive ski town in the Rocky Mountains. His line was sharp: “I thought value investors were supposed to like cheap stuff.” Maybe I should rename it VALUEx Motel 6 and book a $36-a-night airport hotel.
The email was slightly silly, but it sent me back to a real question: what are the values of value investing?
I revisit Ben Graham’s 1949 The Intelligent Investor, the bible of the discipline, and his emphasis on statistical cheapness: single-digit P/Es, discounts to book value, net-nets. What Buffett later called the cigar-butt approach. I walk through why that one-dimensional reading short-changes you, and I share a note my friend Jeff Matthews, author of Pilgrimage to Warren Buffett’s Omaha, sent me after I once called Charlie Munger a “sidekick.” Munger, Jeff reminded me, was the one who pushed Buffett to abandon cigar butts for good businesses, even at prices that weren’t dirt cheap. At Munger’s 90th birthday, Buffett pulled out an old yellowed letter to prove it.
I work through the two dimensions Munger added, quality and growth, why quality alone trades like an inflation-protected bond (think Coca-Cola), why growth without a competitive advantage is dangerous, and why the two married together is magical (think Apple). I come back to American Express and Geico, and to what margin of safety really means when a discount to worth is not the same thing as statistically cheap.
Plus a postscript on how I think about all of this today, after Munger’s passing in December 2023.
The full piece is at investor.fm.
_________________________________________________________ 🔗 LINKS MENTIONED: The Intellectual Investor https://conference.investor.fm/
Pilgrimage to Warren Buffett’s Omaha https://www.amazon.com/stores/Jeff-Matthews/author/B001T73A14?ref=sr_ntt_srch_lnk_1&qid=1721651346&sr=1-1&isDramIntegrated=true&shoppingPortalEnabled=true
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_________________________________________________________ WHO AM I: Vitaliy Katsenelson is the CEO of Investment Management Associates (IMA) and an award-winning writer. Forbes Magazine called him “The New Benjamin Graham.” His work has appeared in the Financial Times, The Wall Street Journal, Barron’s, Fortune, Institutional Investor, and Foreign Policy. He is the author of three books, including Soul in the Game: The Art of a Meaningful Life. _________________________________________________________ Please read the following important disclosure: https://investor.fm/disclosure/
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