VR Logo

The Value of Value Investing

Seven years of Wealth Insight has shown that a quality and value-based approach works even through the most turbulent times...

When Value Research launched Wealth Insight in 2006, we were well-known across the country exclusively as a mutual fund research outfit, and with good reason. We had India's most popular mutual fund website, we published its only mutual fund magazine, we were the authoritative source of information and analysis about mutual funds for practically the whole of the Indian media and the financial sector. However, no one associated our name with equity research, even though internally, we had all the capabilities. In fact, the earliest published analysis from Value Research was on equity investments: our reports on the first public sector divestments were published in The Economic Times in December 1992.

In early 2006, we decided to launch a magazine on equity research, primarily because we realised that there was a huge gap in what Indian investors had available to them. I don't mean that there's no equity research and analysis available, in fact, there was -- and is -- probably too much. The problem is that almost all of this is of a kind that is deeply contrary to the investment philosophy that we believe in, which is Value Investing.

There are a variety of ways of defining Value Investing, but basically it boils down to a simple concept, that of buying quality stocks that appear to be undervalued when evaluated by a measure of intrinsic value. Now, there may be many, many ways of defining quality and intrinsic value but regardless of what one picks, a few additional things becomes clear the moment one becomes a follower of Value Investing. These are, in no particular order: investments must be made with a time horizon of years, the current direction and momentum of stock prices is irrelevant and therefore, technical analysis is rubbish and the fashion of the day (meaning, the majority) is more often wrong than right.

This last point is important to Value Investing because whatever is most fashionable is almost always overvalued. However, for 18 months or so after we launched Wealth Insight, it was pretty much a voice in the wilderness. That was a great time to be a punter and a trader. When our first issue hit the news stands, the Sensex was just above 10,000 having descended from 12,000 in the couple of months preceding. After that, the floodgates really opened. When our first anniversary issue came out, the Sensex was at 15,000 and six months later it was above 20,000. It was a great time for the stock markets but paradoxically, this was the worst time for the investing strategy that Wealth Insight was based on.

The simple truth was that during that time, every investing strategy -- or even the complete lack of a strategy -- worked well. Practically, all stocks were going up and all sorts of hucksters were pretending to be equity analysts and were able to show excellent short-term returns from following their recommendations. Few investors had the patience to look for intrinsic value. But when this maniacal phase ended in January 2008, it was not in a normal realignment of an overheated equity market but in the biggest financial crisis that the world had seen for decades. All stocks crashed and stayed crashed for more than a year, regardless of whether they were quality investments or just froth.

However, the period since mid-2009 has shown the real worth of a sensible and level-headed approach to investments. It hasn't been easy because India's economic governance has been awful during this time. Many sectors that should have done well -- telecom, power and infrastructure -- have been hobbled by the Government's actions. This has shrunk the space within which good investments have to be found.

A principled approach to investing makes it easier and safer to deal with such problems, and that is exactly what we have tried to do for our readers for seven years now.