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The Value of Value Investing

Indian equity investors can no longer rely on blind growth, they must turn to Value Investing instead

The other day, on the 'Business Insider' website, I came across an article with the rather provocative headline, '30 Years Ago, Warren Buffett Gave Away The Secret To Good Investing And Correctly Predicted No One Would Listen'. Attention-grabbing headlines on websites rarely tend to be true but this one is an exception. In fact, the secret that Warren Buffett gave away had first been given away 50 years before that by Benjamin Graham. That was 1934--the year that Graham and his collaborator David Dodd published their seminal tome 'Security Analysis'.

Even though 80 years have gone by, the basic principle that can be derived from this book stays just as true, and just as thoroughly ignored by investors. Here's what Buffett says the followers of these principles do, "...they search for discrepancies between the value of a business and the price of small pieces of that business in that market." There are two parts to this. One is to think of stock investing only as an evaluation of a business for the purpose of buying a piece of it. And the other is to stay focussed on this gap between the value and the price. Put together, this is what is called 'Value Investing'.

Value Investing has few followers in India, but that's something that needs to change as our equity markets evolve. For long, equity investing in India has mostly been about chasing growth. Even our largest companies often grew at a pace when it became appeared to be less important to try and guess the inherent value of the business simply because that value could change so rapidly.

However, I believe those days are gone forever. A sensible focus on the underlying business, as well as a fair evaluation of its intrinsic value is now indispensable for the Indian equity investor. It's often said that a rising tide lifts all boats, but many of the boats are too leaky to stay afloat no matter how high the tide rises.