10 Takeaways From “Something Of Value” | By Howard Marks

1) Prices often become disconnected from fundamental value

“Value investors recognize that the securities they buy are not just pieces of paper, but rather ownership stakes in (or, in the case of credit, claims on) actual businesses. These financial instruments have a fundamental worth, and it can be quite different from the price quoted in the market.”

1. 2) True value investing requires discipline

2. “[Value investing] requires the recognition that attractive investments come when there is a wide divergence between the price at which something is offered in the market and the actual fundamental worth you’ve determined, and the emotional discipline to act when such an opportunity is presented and not otherwise.”

1. 3) Value and growth are not mutually exclusive

2. “[Howard Marks does not] believe the famous value investors who so influenced the field intended for there to be such a sharp delineation between value investing, with its focus on the present day, low price and predictability, and growth investing, with its emphasis on rapidly growing companies, even when selling at high valuations.”

1. 4) Low valuation is not a prerequisite for value investing“The fact that a company that grows rapidly, relies on intangibles such as technology for its success and/or has a high [price-to-earnings] ratio shouldn’t mean it can’t be invested in on the basis of intrinsic value.”

1. 5) Value cannot always be reduced to a number

2. “The fact that something can’t be predicted with precision doesn’t mean it isn’t real.”

1. 6) Qualitative factors and expectations are crucial

2. “Since quantitative information regarding the present is so readily available, success in the highly competitive field of investing is more likely to be the result of superior judgments about qualitative factors and future events.”

1. 7) Past growth can differ from future growth

2. “The fact that a company is expected to grow rapidly doesn’t mean it’s unpredictable, and the fact that another has a history of steady growth doesn’t mean it can’t run into trouble.”

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4. 8) Valuation alone cannot indicate correct pricing

5. “The fact that a security carries high valuation metrics doesn’t mean it’s overpriced, and the fact that another has low valuation metrics doesn’t mean it’s a bargain.”

1. 9) In some cases, disruption can make anticipating rapid future growth impossible

1. “Not all companies that are expected to grow rapidly will do so. But it’s very hard to fully appreciate and fully value the ones that will.”

    

   10) Appreciation does not have to lead to overpricing“If you find a company with the proverbial license to print money, don’t start selling its shares simply because they’ve shown some appreciation. You won’t find many such winners in your lifetime, and you should get the most out of those you do find.”