The Business of Value Investing.pdf

Practicing the Art of Patience 163

Many investors knowledgeable in market history will correctly

argue that a simple buy - and - hold strategy is not as sound as all of its

proponents make it out to be. The most - often cited defense of this

assertion is the performance of the Dow Jones Industrial Average

from 1964 to 1981.

Dow Jones Industrial Average

December 31, 1964 874.12

December 31, 1981 875.00

After the market ’ s dismal performance in 2008, we now have

another period where the markets “ destroyed ” value for the long -

term investor.

Standard and Poor ’ s 500 Index

December 31, 1997 970.43

December 31, 2008 903.25

The goal of the value investor is simple: to buy those securities

trading at an undervalued price, sell securities trading at a fairly val-

ued price, and avoid those securities trading at overvalued prices.

These actions are done without regard to the general level of the

markets. Obviously, market levels do play a role in this approach by

determining the abundance of securities that would fall into each

category. Nonetheless, bargains can be found when the market is

fully valued, often in places where no attention is being paid. When

the market was in love with technology and the Internet some 10

years ago, investors could have found wonderful value in the steel

industry. Nucor, a U.S. steel producer that employs the more effi -

cient mini - mills, is one example. A $ 10,000 investment in Nucor

at the beginning of 1998 would have been worth approximately

$ 200,000 at the end of 2008, for a compounded annual rate of

return of approximately 35 percent over the past decade. The same

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