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Value Investing

By beled | December 19, 2013

Comments from David Leslie:

David Leslie comments, ‘Our overriding investment philosophy at Belmont can be summed up as follows: ‘value investing in quality shares’.  But what exactly is ‘value investing’?  Quite simply, it means that we strive to buy top quality shares at good prices.  These two pillars – QUALITY and PRICE – are both needed for successful, low-risk value investing. 

Let’s talk about quality first.  Let me put it this way: we have a saying – ‘don’t kiss frogs’ – and what we mean, quite simply, is that investors shouldn’t be tempted to buy shares in sub-quality companies, even if they perceive a bargain.  Why?  Because, while they may hope that the company’s fortunes will turn around, this is the same as kissing a frog in the hope that a prince will materialise!  Quality, on the other hand, will always out.  We look for companies with proven, long term track records, quality management and preferably a dominant market share or a dominant brand such as SAB or Richemont. These are the hallmarks of quality. Buying shares in these types of companies virtually eliminates the risk of permanent capital loss (through corporate failure) and dramatically reduces the risk profile of an investment portfolio.

Secondly, a comment on price: buying a top quality share at fair value or, worse, paying too much is never going to differentiate your portfolio from any other.  Once you have identified your universe of quality companies, you then need to look for those that offer real value.  There is a well-known saying in our industry, ‘don’t confuse genius with a bull market!’  When the whole market is rising (eg. post the 2008/09 market crash), it is easy to buy shares that are on the up, but as this cycle matures it becomes increasingly important to be more selective about what to buy.  If the herd is chasing certain shares or sectors and driving those prices to overvalued levels, you will be well-advised to look elsewhere and take a contrarian approach.  This will require patience, since value can take time to emerge and timing is at least half of the battle.

This investment philosophy has served our clients well over many years because they have benefited from superior investment returns at a low level of risk.

-ends-

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