Review of The Little Book of Value Investing
Value investing
I still consider myself a newcomer to value investing and am always eager to learn more about it. So when The Little Book of Value Investing came out last month, I decided to take a look.
The Little Book of Value Investing is written by Christopher Browne, of Tweedy, Browne Company, a well-respected, 86-year-old investment firm who counted Benjamin Graham as both a client and mentor several decades ago. As such, Browne is writing this book based on years of experience and hard-earned knowledge.
I think the book can best be described as a nice little reference manual. In it, Browne details both his mindset and philosophy as well as details on the calculations and ratios he uses to evaluate a company or stock. Actually, from what I could tell, all the financial ratios and criteria that Browne uses are identical to those written for the defensive investor in Graham’s The Intelligent Investor. (Here’s a quick summary of Graham’s defensive value investing ratios and criteria.) I would have liked to have seen Browne’s own tweaks to these ratios, if he had any, given that many people believe some of Graham’s criteria are a little out-of-date.
The chapter I found most interesting was entitled “Send Your Stocks to the Mayo Clinic”, in which Browne summarizes the questions he asks before investing in a company. To me, the following questions (taken from the chapter) are great ones because they force investors to consider the company, not just the stock symbol, and really get in the mindset of evaluating what makes a company tick, grow, succeed, all of which which, after all, should be long-term reasons why a company’s stock increases or decreases in value. (I’m only listing the questions, but Browne devotes a few paragraphs to explaining each one.)