Guest Post by
Abnormal Returns
It seems like a silly question to ask on a site devoted to value investing. Of course, value investing works. All of the academic studies say so! Which might very well be true, but there is unfortunately a gap between what happens in theory and in practice.
Aswath Damodaran in a recent paper [...]
To the best of my knowledge, Warren Buffett, the chairman of Berkshire Hathaway, has only expressed strong opinions about the market’s valuation levels on six occasions in the past 42 years. In the first four cases where we know the outcome, he was uncannily accurate, so investors would be wise to carefully consider his latest warning in a recent issue of Fortune…
Company A has higher Operating margin, higher 3-year Sales growth rate, higher 3-year EBIDTA growth rate and better ROE.
Company A has a better balance sheet with significantly lower debt and lower leverage ratio compared to company B, giving company A significant flexibility to take on debt and grow by acquisitions.
Yet, incredibly, company B trades anywhere between 2 to 2.9 times the market multiple (Enterprise Multiple/EBIDTA) that company A trades at. Company B is also into Nutritionals, API and is a bigger player in OTC.
You could purchase the best stock in the world, but if you buy it at a lofty premium, it is a bad investment.
Vice versa, the stock could be the worst company in the world, but if bought it cheap enough, it could work out to be an excellent and profitable investment.
Valuation matters.
Navigating through the SEC documents can be confusing and intimidating, especially when you encounter a document that is 100 pages long and is full of text.
Hopefully this tutorial will be your ultimate and practical guide to help you glide through the Proxy document in no time.
Before getting started, see below for a previous tutorial on how to read the SEC Form 3, 4 and 5.
I’m sharing my list of slam dunk value investing blogs.
These are all value investing orientated sites, listed in alphabetical order, that will surely help you on your way to becoming an all star investor.
Get your bookmarks ready.
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