Value investing in the long term

2010-10-16 00:00

UNDERSTANDING the intrinsic value of equities in relation to their share prices is one of the keys to unlocking returns for investors over the long term.

Speaking at the Harvard House/Witness Annual Investment Conference in Pietermaritzburg yesterday, executive chairperson of RE:CM (Regarding Capital Management), Piet Viljoen presented a strong case for “value investing”.

He stressed that investors really need to understand the fundamentals involved in buying equities.

“Buying shares is like buying part-ownership in a company. It gives you opportunities — a portion of the future cash flows of the firm — and rights.

“One must understand the difference between [intrinsic] value [of the business], which is a stable number, and the price of the share, which is volatile and changes frequently.”

He added that you also need to decide what type of investor you are: “Are you a price-driven investor driven by sentiment, emotion and news flow. Many professional fund managers manage money this way.”

Alternatively, there are investors who focus on value, “by looking at the annual report of the company — evaluating current cash flows and future cash flows”.

These investors then work out the value of the business in relation to its share price.

He stressed that investors should look to buy assets when sentiment is negative.

“Value-type investors are generally more successful, but they go through long periods of underperformance and are ridiculed in the market.

“We buy where price is below value and this is usually when sentiment [toward the share] is negative. It’s a tough place to be. Generally, when sentiment is negative, the price is low and it is generally a good time to invest … when the price is below fair value. The price you pay determines your return. If it’s below intrinsic value you’ll get a good return.”

He added: “Where are the good investments? They are in places where no one wants to be — the U.S. dollar, the U.S. economy, UK and Europe.

“Those areas are exactly where you should be looking to invest, where prices are below intrinsic value and negative sentiment exists toward these destinations.”

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Comments have been closed for this article.

Inside News24

 
/News

Book flights

Compare, Book, Fly

Traffic Alerts
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.