Extracting Value: Value Investing Resource

Warren Buffet arguably the best investor ever, is still investing in this market so why shouldn’t you.  Sure his company recently had a bad, bad quarter with revenue down something like 75%.  But what does that mean in this market?  Everyone is seeing red ink all over the place.

If you’re like every other value investor out there you might not beleive all that you read in the balance sheets of some companies.  A company today with billions of dollars in asset might get most of those assets wiped away depending on what they are, real estate, inventory that becomes obsolete… And while the risk is always there for those assets to be worth considerably less, the chance that risk is realized has become increasingly higher.

So, for all you value investors out there looking for what the Oracle of Omaha is doing, look no further than their filings with the SEC. Recapped here, Reuters talks about what Berkshire increase and decreased in holdings, not eliminating any, but taking some shares off the table and quintupling others.

The Oracle, in contrast to things Jim Cramer has recently said, is hot on the stock market and believes this is where the best deals are. In a down market. Can you weather the storm with him?

PE this and PE that. Are we back in elementary school playing kickball?

Nope, we’re talking about investing and a ratio that is a decent marker for how expensive a stock is based on only a few piece of data. Those data are the price of the stock per share and the annual earnings of the stock per share. When you divide the price by the earnings, you get the PE ratio.

PE = Price per Share / Earnings per Share

So what does the PE ratio tell you? It tells you how many years it would take you to get your money back if the earnings keep up as they are. (Of course that is, if the company were to fully retain earnings, or give them all back to the shareholders.)

Growth stocks usually have high PE ratios between 20 and 30. This accounts for all the growth that you’re buying the stock for. For value stocks, these can range greatly. However, if you look into a value stock and see that the price of the stock based on book value is low, say 1 – 2 times the book value, and the PE ratio is low, say 5 – 10, then you may be onto a stock that could prove a value investment.

The PE ratio needs to be taken into account with many many other ratios but it can be a good indicator of how cheap a stock really is based on the earnings of that stock.

Value Investing isn’t a new concept in the world of investing. I’m guessing people have always been look for value when they buy something. But what I’m talking about, analyzing securities, stocks, ownership in a business, in a way that looks to see if that security is undervalued, is something that two very famous investors started to truly consider back in the early 30’s.

For those of you who don’t know, I’m talking about Benjamin Graham and David Dodd. These two are what some might call the fathers of value investing as we know it today. Their book in 1934 titled, Securities Analysis, is the book that brought the value investing approach to investments into the forefront and sparked careers for people like Warren Buffet. Warren learned directly from Ben Graham.

Benjamin Graham and David Dodd made terms like “intrinsic value” and “margin of safety” fun. These two terms ensure a value investor that he or she will be buying an undervalued security. Their methods, unlike trading, teach investors to buy stocks that for one reason or another are undervalued. They taught that even though a company may be getting pounded by the investment world, it can still be a good buy, just based on the intrinsic value of the company.

Benjamin Graham went on to write another book that provides value investors with one of the best resources on the subject ever written in The Intelligent Investor. A book that gives investors easy to follow rules for finding value in the stock market.

These two investors helped pave the way for value investing and in a market where day trading, options trading, buying and selling on any old blog or news article is the norm, their theories still hold water in any conversation. After the blog storm has settled, everyone will always look to what the actual value of the stock is.

To kick off the reporting of Value Investing and providing readers with a great resource I thought it be a good idea to start with a resource to research stocks. I was checking in on my portfolio and financial news today over at Google Finance and found a new NEW tool from them.

By the way I like Google Finance because they allow you to access all sorts of sites data, although they could put more ratios and info outside the balance sheets on the quote pages.

But the new Google Stock Screener is a great tool. I’ve only just begun to play with it but the javascript enabled Google interactivity and user friendliness of the tool is just what I’ve been looking for. You can add as many or as few screeners, or criteria as they call them, as you wish.

Now, they don’t have everything you’ve ever wanted in terms of ratios but they have some key ones that value investors should look for like book value per share, cash per share, and EPS growth rates. These are all stats that I’d like to see on the main page of each quote in Google Finance but glad that they finally opened up their site to new functionality.

If you like Google products and you like to research stocks then you’ve finally got a good place to visit in the new Google Stock Screener.

Welcome to Extracting Value!

Extracting Value is a blog, a regularly updated resource, or whatever you want to call a website with a ton of information all about value investing. Now, when you hear of value investing you probably think about (or should think about) Warren Buffet, arguably the best in the game of value investing.

He’s taken his company, Berkshire Hathaway Inc and turned it into one of the best holding companies anyone could have owned for the last 20 years. And he’s been investing using the generic term “value investing” for a lot longer than that, so there must be something to it.

This blog has been created as a way to help average investors, those investors who invest on their own through brokerage firms like sharebuilder or etrade, to determine what constitutes value investing. Learn about all the terms, the ratios, the numbers that make a stock a value or not.

Value investors buy on value and potential return. That may include stocks that have the potential for huge growth, but it may just be a stock that is way undervalued by the market because of some bad news and if you sold the company as just assets would be worth a lot more per share.

There’s a bunch of ways to find value, those are just some broad examples. Extracting Value will help its readers sift through the latest information on value investing and help make more informed investors of us all.