Does Value Investing work?

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Here are the most common questions I get asked about value investing.

Historical Evidence

Studies on value investing often take on the following form:

  • Sort out all the shares traded on a large exchange into groups ranked by a simple measure of value – either Price to Earnings (P/E) or Price to Book Value (P/B). The low P/E or P/B are the ‘value stocks’.
  • Record the share price at the start and end of the year, add in dividends, and compare the returns of the different groups.
  • Repeat the testing over many different years.

These studies have been tested across many different markets and countries and all found that the ‘value stocks’ will, on average, outperform the more highly priced “growth” stocks.Continue reading→

The latest from the Value Investing and Search for Value Seminar

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The seminar ran over five days with 30 other participants and was led by Dr George Athanassakos with the assistance of a number of graduates from Ivey Business School who acted as tutors during our breakout sessions.

The three and half days of lectures were followed by one and a half days of practical exercises in small break out groups where we applied what we learnt to real companies.

Here is a six-point summary of how to establish an intrinsic valuation of a company.Continue reading→

Why go all the way to Toronto for a value investing seminar?

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The reason I went all the way to Toronto for a value investing seminar, is my eternal quest for value for my clients.   

There are only two Universities in the world that have value investing as a specific dedicated area of study within the University.

The first is the University of Western Ontario (Canada) where I attended the seminar.  Dr George Athanassakos, the seminar leader, teaches value investing as part of an MBA program and has written several papers on value investing.

Continue reading→

The power of compounding

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I was recently asked to give an impromptu speech to share the words of wisdom I would give my 16-year old self.

My short speech was to explain the power of compounding.

It is an understanding I am trying to impart to my children of how compounding interest or returns work in your favour over time.

Of course, my children politely listen to me explain the power of compounding, roll their eyes and say, “Yes Daddy I understand.”  I ask questions like, “Do you want me to buy that lego set now or a car when you turn 50?”  I am not sure those questions help, turning 18 is an eternity when you are young.

Warren Buffet, the world’s third richest man, certainly understands the effect of compounding.  As a child he gained an understanding of what compounding could do and it has shaped his whole life.

It is one thing to understand compound interest but applying it is where the magic happens.  The sooner you start the greater the result. Continue reading→

The new-look Pension Loan Scheme

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One of the interesting things coming out of the Budget was the extension to the Pension Loan Scheme (PLS).

Fortunately, my clients have significant superannuation and private savings and do not require or have the inclination to utilise the new pension loan scheme which would involve them accessing the equity in their home to increase their income.

However, for a lot of retirees the balance in the superannuation or private savings may not be large and most of their wealth is tied up in the family home.

At this point the Government will typically provide a means tested age pension.Continue reading→

banking royal commission

How do you trust Financial Advice in the post Banking Royal Commission era?

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The ‘Banking Royal Commission’ is certainly hitting the headlines.  Round two of public hearings over recent weeks focused on financial advice and claimed a few scalps at AMP with the CEO and Chair leaving.

Not many are weathering the storm of the Royal Commission well, neither the Banks, Financial Planners, Dealer groups, Financial Planning Association nor even the corporate regulator, ASIC, are without damage.Continue reading→

Words of wisdom from the world’s fourth richest person – Warren Buffett

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Warren Buffett, founder of investment company Berkshire Hathaway and the world’s fourth richest man, sends an annual letter to shareholders that is also eagerly awaited by his followers.

I have been reading and collecting his letters for many years as they give an insight into Buffett’s value investing philosophy and his investment mind that has presided over Berkshire Hathaway’s compounded annual gain of 19.1% p.a. since 1965.  Continue reading→

Super is now easier for employees – who would have thought?

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Did you know that all Australians are now eligible to make tax-deductible super contributions subject to an annual $25,000 cap?  Previously, only those with over 90% income from self-employment were eligible. 

This change to superannuation occurred last year but with focus on the new $1.6 million limit to all in the pension phase the relaxation of the eligibility rules for tax-deductible super contributions may have been overlooked.  These changes will appeal to many salaried people.Continue reading→