Anthony Speciale Stock Market Analyst

Better Way to

Play Video

Value Investing Is Not Dead – Here’s Why…

Speaker 1 (00:01):
Hi guys, I’m Tim Melvin, and welcome back to another edition of a better way to wealth. And today, guys, I want to tell you wall, Street’s telling you a real big lie right now. It is costing you a fortune. Now, everywhere you look, your broker’s telling you, the media is telling you that so-called value investing is dead. Can’t do that. That’s the old way can’t make any money anymore. You got to buy these big, exciting, wonderful, gross stocks. That sounds so cool. Doesn’t it. The only thing is it’s completely 100% wrong and you are missing out at a chance to get richer than you ever thought you could. Now there’s two things wrong with this value. Investing is dead myth. First off, the way they come to that conclusion is they take the Russell 2000 index and they look at it and they split it into based on price to book value.

Speaker 1 (00:55):
The lower half is the value index. The upper half is the growth index. That’s absolutely ridiculous. First of all, you can’t use that type of indexing strategy for a research intensive strategy like value investing value investing is not going to buy the bottom half of the entire market based on price to book value. No, not at all. It’s going to look for the very best companies in that lower price to book value. So there’s a thousand companies. They’re a value investor, a true value investor might come up with, I don’t know, 20 out of the thousand. So it’s an asinine way to compare value and growth. It just makes absolutely no sense. And second guys let’s be honest, true value investing what Ben Graham invented all those years ago. And Warren buffet perfected to become a billionaire in the first place was always based on smaller companies that traded at unreasonable bargain valuations. That pretty much nobody had ever heard of. If you want to run the biggest

Speaker 2 (02:02):
Fund in town and collect the highest stream of fees, value investing is

Speaker 1 (02:07):
Not for you. Now, wall street. Doesn’t want you to know that because there are billions of dollars in value funds

Speaker 2 (02:13):
And they pay steady streams of income

Speaker 1 (02:16):
To most wall street firms. And yes, most of them underperform the market. They’re too big. They can’t succeed with the amount of funds that they have on hand look, Warren buffet bought a lot of special situations, smaller companies. It was all he did until he got to the point where he had about a billion dollars or so floating around and he realized, Hey, I’ve got too much money to continue in this fashion. He then switched to a strategy of buying great companies at bargain prices. Usually during really bad periods in the stock market. That part of this discussion is a story for another day. Now the big guys can’t engage in what’s true value investing you and I can, and we can make a lot of money together doing that. So I’m going to talk about three strategies today that have just piled up ridiculous returns over the last 10 and 20 years.

Speaker 1 (03:15):
First real simple strategy guys. All I want you to do is buy that handful of financially viable companies that trade below their tangible book value. Okay. Real easy number to find you could get it anywhere on the web. You find those that, you know, the checklist tell you these companies are going to survive. They’re going to be fine if you don’t have a checklist. That’s okay. I do. And I can tell subscribers all about which of these companies they want to consider buying right away this simple strategy. Let me check my math here real quick. Yep. It’s outperformed the indexes over the last 10 years. You remember the index performance has been really impressive about 14% a year by about 50%. It’s returned little over 21% a year over the last decade. Over the last 20 years, this thing has crushed the market by a five to one margin giving you much, you know, just an enormous multiple of the amount of money that you could have made in gross stocks or index funds or anything else that you might think of.

Speaker 1 (04:20):
There’s a second strategy. And I have to say that I love this strategy. It’s just made so much money over the years and it’s, it’s a little daunting on the research side, but again, I’ll do that for you. All we’re going to do is we’re going to look for companies that trade below their liquidation value. What I call rational liquidation value that have no chance, little to no chance of real financial distress. They’re just wildly out of favor or being ignored or more likely nobody’s heard of them yet. So they’re trading for below what they could be profitably liquidated for, again, checking the numbers over the last decade or two to one margin that’s right, 27% annually just buying these companies and letting them drift back up to what their liquidation value might actually be. Again, a five to one margin over the last 20 years.

Speaker 1 (05:11):
So spectacular profits that can be made just investing in these companies. Now there’s never a lot of them around you. You might get nine or 10 of the low price to book value, and then you might get nine or 10 of the low price to liquidation value. So you’re not going to have hundreds of stocks to buy here. Now, one final strategy. Remember how the index has done on just price to book value. So that leaves out a whole different way of valuing a company because companies that traded a low price to free cash flow or cash flows coming through the company are also considered bargain value stocks. And when you find those, they may trade above book value because they’re producing so much cashflow off of intellectual property or something. That’s not brick and mortar. So book value looks small, but the price compared to cashflow is very low.

Speaker 1 (06:02):
Now just buying those low priced to free cashflow stocks, where the fundamentals of the business are in outstanding shape and are getting better all the time has also produced pretty spectacular returns. If you look about two and a half to one over the stock market over the last decade, and again, back to that massive five to one advantage over the stock market over the last 20 years. And again, it’s only a handful of these at any particular moment in time. So is value investing dead? No, it’s just not a game wall street can play anymore with tens of billions of dollars. Now, if you have tens of billions of dollars, well, that’s a nice problem for you to have, if you don’t, let’s start using these strategies. So we too can reach the levels of wealth that we are trying to achieve now be sure and tune in again tomorrow, because I’m going to come back with an example of each one of those three strategies for you. I’m Tim Melvin, and this has been a better way to what.