The Business of Value Investing.pdf

20 The Business of Value Investing

Although Graham focused his investment activities primarily

on quantitative aspects, qualitative attributes sometimes can be very

valuable when supplemented by a sound quantitative foundation.

Brand recognition is the most obvious of qualitative considera-

tions. The Coca - Cola Company has the most recognized brand in

the world; that recognition is extremely valuable. The Coke brand

allows the company to operate and compete anywhere in the world.

Coke has spent decades and hundreds of millions of dollars in mar-

keting and advertising to make its name the most dominant in the

soft-drink industry. When is the last time you heard of an entrepre-

neurs looking to start a soft - drink company? Even with $ 1 billion,

it would be virtually impossible for even the cleverest of entrepre-

neurs to dent Coca - Cola ’ s worldwide dominance. The brand is a

very valuable quality, and it has created billions of dollars in value

for Coke shareholders over the years.

What can explain the long - term success of a value - based approach,

since luck obviously can ’ t be the reason for so many different inves-

tors who follow the same intellectual philosophy? Piggybacking isn ’ t

one of them, as many value investors hold strikingly different portfo-

lios. In his essay, Buffett compared the results of several Ben Graham –

schooled investors. While all of them had market - beating track

records, their portfolios were not strikingly similar to one another.

In fact, Walter Schloss, who, like Buffett, was an original student of

Graham, was widely diversifi ed, unlike many value investors who pre-

fer a higher degree of concentration. During the 28 years that Schloss

ran WJS Partners investment partnership (1956 – 1984), he typically

held over 100 securities. Yet his annual compounded rate came in at

16.1 percent versus 8.4 percent for the S & P. And Schloss never went

to college. Schloss did, however, focus on the cold hard numbers of

the business and could calculate if a business was selling at a market

price that was signifi cantly below its value to a private buyer. He didn ’ t

worry whether he was buying the business in January, December, or

any other month that pundits claim is better for equity performance. 5

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