To quote Benjamin Graham, often regarded as the “father of value investing”: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Investment philosophy of Tong’s Portfolio: Part 2 — Investing is always about valuations based on intelligent and rational assumptions
Value investing is a bottom-up investing strategy. One usually starts by sieving though the universe of stocks using various valuation metrics such as price-earnings (PE), price-to-book (P/B), dividend yields and return on equity to search for undervalued opportunities. It is fundamentals-driven research — that is, analysing the company’s historical earnings, cash flow and balance sheets as well as growth prospects to derive its intrinsic value, which is the sum of future discounted cash flows (DCFs). In other words, the numbers are not all the same for every investor, as some are based on “expectations”. As we wrote last week, it is our fundamental belief that valuations will eventually reflect intrinsic value, even though stocks can and do trade above or below their fundamental worth in the shorter term for a myriad of reasons.
