The Little Book of Value Investing
There are many ways to make money in today’s market, but the one strategy that has truly proven itself over the years is value investing. Now, with The Little Book of Value Investing, Christopher Browne shows you how to use this wealth-building strategy to successfully buy bargain stocks around the world.
Browne’s experience as managing director of investment firm Tweedy, Browne provides examples to support his lessons on value investing, a method of buying stocks that have fallen in price to earning the best return over the long term.
Browne uses examples from successful investors (such as Benjamin Graham, Walter Schloss, and Warren Buffet) to illustrate that value investing is the best way to make the most of one’s investments. The zingy chapters titles (”Buy Stocks like Steaks…On Sale,” ”Around the World with 80 Stocks” and ”Sifting out the Fool’s Gold”) are demonstrative of his penchant for metaphors, parables, and anecdotes, which make this book as entertaining as it is informative. Browne’s short chapters detail useful and time-tested concepts, including the significance of book value, which foreign economies are worth investing in, and who to watch for investment ideas.
With detailed advice and thorough explanations, this book should prove an asset to both professional and amateur investors.
Table of Contents:
Chapter One – Buy Stocks like Steaks . . . On Sale
Chapter Two – What’s It Worth?
Chapter Three – Belts and Suspenders for Stocks
Chapter Four – Buy Earnings on the Cheap
Chapter Five – Buy a Buck for 66 Cents
Chapter Six – Around the World with 80 Stocks
Chapter Seven – You Don’t Need to Go Trekking with Dr. Livingston
Chapter Eight – Watch the Guys in the Know
Chapter Nine – Things That Go Bump in the Market
Chapter Ten – Seek and You Shall Find
Chapter Eleven – Sifting Out the Fool’s Gold
Chapter Twelve – Give the Company a Physical
Chapter Thirteen – Physical Exam, Part II
Chapter Fourteen – Send Your Stocks to the Mayo Clinic
Chapter Fifteen – We Are Not in Kansas Anymore! (When in Rome . . . )
Chapter Sixteen – Trimming the Hedges
Chapter Seventeen – It’s a Marathon, Not a Sprint
Chapter Eighteen – Buy and Hold? Really?
Chapter Nineteen – When Only a Specialist Will Do
Chapter Twenty – You Can Lead a Horse to Water, But . . .
Chapter Twenty-One – Stick to Your Guns
Don’t Take My Word for It
About the Author:
CHRISTOPHER H. BROWNE is a Managing Director of Tweedy, Browne Company LLC and is a member of the firm’s management committee. He is also President of the Tweedy, Browne Funds, a mutual fund group. Browne is a graduate of the University of Pennsylvania where he serves as a Charter (Life) Trustee. At Penn, he established the Browne Center for International Politics and the Browne Distinguished Professorships in the School of Arts and Sciences. Mr. Browne served on the faculty advisory committee of Harvard’s John F. Kennedy School of Government program in investment decisions and behavioral finance. He is a trustee of Guild Hall, a regional arts and education center in East Hampton, New York, and of the Long Island Chapter of The Nature Conservancy. Mr. Browne is also a trustee of The Rockefeller University and a member of its executive and investment committees.
Reviews about the ebook:
Well written if a bit dated in 2020z. The bottom line is it is compact and has some sound (by my reckoning ) explanations of basic principles. I enjoyed reading this and would recommend it to anyone who is curious and wants a down-to-earth explanation of what value investing is. It won’t make you a million quid though and you shouldn’t expect it to either.
- Rishiraj Biswas:
This was my first book on value investing and now having read multiple books on the subject, I came back to write a review for this amazing little book that left a lasting impression on me. Although I began with The Intelligent Investor by Benjamin Graham, the father of value investing, I couldn’t complete that book as I felt it was dry. I shifted to online blogs and articles until I came across this book.
While I won’t comment on the content, I would just like to say that the author has a nice way of analogizing which makes the book very pleasurable to read. Till the end, he gives nice little analogies, the memories of which have to stick to me. I will say the book gives a bird’s view of value investing and thus serves as a very good introductory book.
Here is one of my favorite parts (Just to show you how the book is a pleasant read).
“Value stocks are about as exciting as watching grass grow. But have you ever noticed just how much your grass grows in a week?
Value investors are more like farmers. They plant seeds and wait for the crops to grow. If the corn is a little late in starting because of cold weather, they don’t tear up the fields and plant something else. No, they just sit back and wait patiently for the corn to pop out of the ground, confident that it will eventually sprout.”
I’d say the best quotes on value investing might actually be from Christopher H. Browne!
If you want to read deeper into value investing, I suggest “The Intelligent Investor” (if you haven’t read it already) and “Creating a portfolio like Warren Buffet” by Jeeva Ramaswamy.
this is an incredibly well-written, concise book on value investing. it tells the reader exactly what to look for – equities that are priced cheaper than face value. why do I like this book? – it simple and clear – it doesn’t expect the reader to be a financial analyst or an accountant so the style is very easy. it uses great case studies, it’s very short and not long-winded and I will use this as a reference point going forward.
reading this book; you won’t become a stock market guru overnight, however you will learn a hell of a lot and may even be swayed by value investing as a methodology going forward.
- Rohit Patel:
It always amazes me how a few hrs of reading can give you insights into the mental model of some of the greatest minds in a field, something that might have taken them their lifetime to develop.
This is one such book, very small and concise.. it gives a broad overview of what value investing is and how can you get started. definitely a must-read for someone thinking of getting into long-term investing.
What I took away from this book was that Value Investing is an Art that requires a lot of patience. There are no shortcuts to determine the ‘intrinsic value’ of a company.
Whether you are a savvy investor or are just beginning, this is a great book to pick up.
Warning- this book might require some prior knowledge of accounting terms and if you have no clue about it, you might want to read “the accounting game” first.
Like its title, it’s a very small book about Value Investing. A summary of value investing. Dwells a little bit about screening the stocks and reading the PL statement. Pretty concise. I would recommend this book to someone who is familiar with Value Investing and its concepts and is looking for a framework. This book gives you a rough framework that you can build on if you are seriously planning to invest.
Although having only read a few books on investing and finance I can by far say this is the best book I’ve read. The fact that the author is an actual investor and comes from a lineage of investors with ties to Benjamin Graham and Warren Buffet only authenticates his points even more.
Would recommend it to anyone and everyone, but you may need a tiny bit of knowledge on financial terms.
- J. L. Gunn:
The Little Book of Value Investing is steeped in the ideas of Ben Graham and numerous studies show the outperformance of the Value Investing method over all others.
What I liked about the book is that everything is explained really clearly and you come away from the “I get it feeling” This is useful for the beginner and a little further reading on the internet and you will be well on the way.
- James Spann:
The book gives a solid overview of how to read a balance sheet and what kinds of questions to ask when looking at a particular stock. Browne gives clear reasoning as to why he supports Value investing and sets the stage for others who want to learn how to do it. Coupled with his experience in the stock market, Browne sufficiently uses his opportunity of this book to explain successful steps that are devoid of the “get rich quick” schemes that he is strongly against. I would recommend this book for someone who is getting involved in investing or wants to gain exposure to how companies can be valued.
I liked the first few chapters of this book. It featured a well-written foreword by Roger Lowenstein and hit home the logic of value investing. Christopher Browne writes well and I zipped through the book in three hours.
However, reading about investors like Benjamin Graham, Warren Buffet and Walter Schloss buying companies at unbelievably low multiples feels like a bygone era.
I believe the reason value investing worked so well in the past is because it was so intensive.
Before computers, and even calculators, value investors were toiling over balance sheets and running numbers to find the cheapest stocks they could. It was grunt work that required an advanced financial skillset with scarce information that wasn’t available to many people in the mid-20th century.
With the proliferation of computers and access to Fidelity’s financial screens, that grunt work is much simpler. And because it’s simpler, more people can do it. And the more people do it, the harder it becomes to find that deep value buys that are touted throughout the book.
At the end of the book, Browne admits this point and says the process has to remain dynamic, abandoning metrics like book value and looking at acquisition values instead.
I think more of the book should have been devoted to explaining those methods.
Great introduction to value investing, can be understood by those looking to manage money themselves and those wanting to make informed decisions as to who to put their money with. I especially enjoyed the list of “dig deeper” questions he provided to help form investment theses. I would have liked for him to present some opposing viewpoints more charitably (or at all), but like most value investors, Browne peers down from the value investing moral high ground and doesn’t provide any helpful debate on investing styles.
A good introduction to value investing. This book can be a starting point for learning for a lot of new investors who are entering the market.
- Graham of London:
This is a useful easy-to-read summary of the key principles most value style investors talk about. It pulls together ideas mentioned in other books on the subject and presents them in a simple understandable way. The last few chapters actually talk about items found on the balance sheet and profit and loss account statements which I found particularly interesting. Obviously, the proof of the book’s worth will as always with these investor self-help books be to have the discipline to apply it in practice.
- John G. Barbour:
The heart of this book is chapters 12-14. Chapter 12 is titled “Give the Company a Physical” and shows you how to examine the balance sheet. The important ratios here are:
1. The current ratio – Current assets over Current liabilities – look for a figure greater than 2
2. The quick ratio – same thing minus the inventory
3. Shareholder equity (book value)- Total assets (fewer intangibles) minus total liabilities
4. Debt to equity ratio – Total debt over Shareholders equity – look for numbers < 1 – the lower the number the better
Chapter 13 is titled “Physical Exam Part II” and examines the income statement.
1. Look for growing revenues ( sales)- top line
2. Gross Profit – Sales minus COGS
3. Gross profit margin – Gross profit over Revenue – look for stability
4. EPS – net profit divided by shares outstanding
5. ROC – Earnings divided by beginning of the year’s capital (stockholder’s equity plus debt)
6. A low P/E relative to industry and market
Chapter 14 is titled “Send Your Stocks to the Mayo Clinic”. Here he gives you 16 additional questions to ask about your company. You have to get the book to see the questions.
This book gave me the idea to create a spreadsheet with info that I gathered from the book. The following is the one I did on Intel.
Shares Outstanding 4,980
Price per share 24.26
Market Capitalization $120,815
Earnings per share 2.0
TOTAL ASSETS 83083
NET WORTH ( SHAREHOLDERS EQUITY) 51,194
Total Liabilities 31889
Book Value per Share $7.15
Price to Book value per share ratio Selling for 3 times the amount company can be sold for
Price to Earnings per share ratio Selling for 12.1 times earnings
Current Assets 28677
Total Current Liabilities 11798
Net Current Assets (Graham’s number) $16,879
Net Current Assets per share $3.39
Price to net current assets per share ratio Selling for 7.2 times net current assets
Total Assets 83083
Total Debts 31889
Assets to Debt ratio 2.6
- Steven Gresham:
I may be biased – I have already been converted to value investing so this book read nicely to me. It’s one of the few to back up statements with research and as such has a nice blend of evidence with experience from the author. US-focused but completely applicable to anyone living in a developed country.
In my top 5 books on investing. Recommended.
- Missing Module:
I enjoyed reading this book due to its succinctness, clarity, and beginner-friendly text. Browne does a good job explaining the ideas behind Value Investing, him being a student/follower of Warren Buffet’s methods. It’s a good intro book but doesn’t expect it to just teach you everything you need to know on the topic. The book is relatively short and handheld so it’s perfect for reading at a coffee break/on the bus, etc.
Just keep in mind that if you’re looking for it to give you ideas on which securities to invest in and actual investment strategies/advice, you’re not going to find it here. It’s a basic book that explains the idea of Value Investing, and some of the basic methodologies behind it. It explains the history of it, the definition, and how to put it into practice. Any more details would have to require more advanced concepts which will not be covered.
- VJ Som:
Little one provides a succinct and straightforward approach to value investment. Explains PE, PB, and other important terms with day-to-day examples. Stock hunting is similar to a treasure hunt. This book has its titbits for finding the diamonds in the trenches of investing bibliography.
Pascal’s quote, “Most of the men’s problems arise from their inability to sit quietly and alone” is more apt for today’s investors.
Switching the lanes on the freeway, farmers waiting for the seeds to grow are some great analogies that I learned.
If you are on the fence about purchasing this book and find yourself reading the reviews to help decide, just stop here. I decided to bite the bullet and buy it and I am glad I did. It’s easy to follow and has a lot of good points. It’s not going to tell you what to do and what to buy and yes its topics are quite intermediate. However, a lot of books on investing are extremely dry and I end up putting them down and never returning to finish them as a result. I have read this one twice already.
The author describes the not so much practiced art of value investing beautifully with analogies and evidence that it works better than momentum and growth strategies over the long term. He lists down the challenges one faces in being a contrarian and how investors get tempted by the “sexy” stocks. He dives deep into the methods he has been using over the years and how they have worked during market bumps.
The only letdown is that he wrote this book in 2006 and the market has changed a lot ever since, though the principles remain the same but would have been more interested in the recent advancements and how being a contrarian served during the 2008 financial crisis.
- Sami Saleh:
This little book is a must-read if you are a value investor. After Ben Graham’S Intelligent investor, this little boom stands out for its simplicity and clarity.
- Abhishek Sahoo:
The simplicity and lucidity of thinking are visible throughout the book. Sound principles which could be applied to any market and situation. Some valuable personal finance advice as well. What’s difficult is sticking to these principles across the market and economic cycles and not falling prey to psychological and behavioral biases. One of those books which are meant to be read several times, digested, and applied in practice.
If you’re reading this, hope it’s just a preview of what you know already. If not, hope this opens you up for further research/study. If neither, there is a high probability that you are not suited for this.
What I took away from this book was that Value Investing is an Art that requires a lot of patience and fortitude. There is no magic formula to determine the ‘intrinsic value’ of a company. Any criteria (be it P/E, net asset value,…, etc.) is going to have fuzzy edges and drawbacks.
- Vikash Anand:
Like other awesome books in the Little book series that I have enjoyed reading (The Little Book That Beats the Market by Joel Greenblatt, The Little Book that Builds Wealth by Pat Dorsey), The Little Book of Value Investing by Christopher H. Browne is an awesome book to understand the field of value investing. The little book series offers tons of value to understand the field of investing. The books are written very precisely & clearly.
The Little Book of Value Investing by Christopher H. Browne is an awesome book to understand the field of value investing. It extensively covers all the aspects of value investing i.e. intrinsic value, Behavioral Psychology, valuation of stock investing.
Value Investing is distinct from momentum investing. The basis of Momentum investing is to focus on the trends of the market and price fluctuation, whereas Value Investing is to focus on buying stocks with a significant margin of safety in terms of price & business and hold them for a long period of time.
Value Investing in simple terms is buying securities for less than their intrinsic value on the basis of their underlying business distinct from what is happening at the superficial level of the market. If a stock is selling for less than its intrinsic value, there is a high probability that the market will ultimately realize the value of the stock and the price will rise to a level more indicative of the company’s worth.
It’s difficult to practice Value Investing in this era of hyper-information as it means being contrarian to the bets of market pricing. When stock price climbs, research reports sell the strategy of buying, and when a stock price falls, the research reports tell us to generally hold. Investors are generally afraid of being left behind and like the idea of owning the popular stocks, everyone is talking about. This herd mentality impacts everybody is it, individual retail investors or professional portfolio managers. The mindset allows investors to be comfortable losing money as long as everyone else is losing money too. It’s difficult to be contrarian.
The reputational and career risk of being a contrarian is far greater than the risk of going with the flow in a short term. Value investing requires the ability to go against the herd, and the risk of being called a dummy from time to time.
Price to book value, price to earnings ratio, price to net current assets give a very good sense of the valuation of the company. Consistent insider buying of stocks selling at low multiples of earnings is a good indication of the business potential of the company. Stocks with fair valuation and consistent insider buying perform far better.
- Đạt Tiêu:
1. Buy stocks on sale like any other products
-> People tend to do the opposite of this because:
FOMO, like to own hot stuff, follow crowd emotions
2. 2 basic principles of value investing:
– Intrinsic value: a.k.a book value (net worth), the real value of the business
– Margin of safety
-> For short-term, stock prices fluctuate by market sentiments, crowd emotions
In long run, stock prices reflect correctly with intrinsic value
-> Use intrinsic value to seek bargains in buying good stocks
because stocks often being mispriced, either overvalued or undervalued
-> Use a set of financial ratios or appraisal methods (ex: similar M&A)
3. Margin of safety
-> hard to estimate the exact intrinsic value and impact from many factors in future
can rely on past performance, but the past is the past
-> need a cushion to allow room for errors
-> classic Ben Graham margin of safety is stock price selling no more than 2/3 intrinsic value
-> portfolio diversification
-> a contrarian investor: buy when stocks are cheap when people sell and sell when people buy
-> Keep the head cool and stay calm!!
4. Seek for insider’s actions
5. Take inflation or exchange rate into account (if there is)
6. Sometimes, cheap price is not that good -> should do further analysis before buying
7. Stock price falls often because:
– Too much debt
– Increased competition in the industry
– Obsolete technology, depend too much on technology -> easy to be out-of-date
-> stay away from those companies
-> Seek for companies that:
– have durable competitive advantages: brand name, patents, advanced techs,…
– easy to understand and evaluate the business
8. Make some criteria to filter out bad stocks. Using:
– P/E, P/B, P/S, PEG
– Free cash flow
9. Do further analysis using:
– Balance sheet:
-> how many assets, how much debt?
-> assess solvency and liquidity of the business
– Income statement:
-> how much profit, earnings, dividends?
-> assess profitability, dividend pay-out
10. Quality checklist:
– Can raise the price?
– Can make more profit?
– Can control expense?
– Compare to other business in the industry
– How about excess cash?
– How stable the company financing?
– Insiders doing what?
– Future plans?
11. Strategy: buy and hold!!
- Andre Cordeiro:
A great introductory book on value investing! It explains in a fairly detailed manner how to perform fundamentalist analysis on stocks in the search for good business that is currently undervalued. For those interested in value investing who are not really familiar with this strategy, this book is a must-read.
+ this book is very handy and cute by appearance.
+ content with respect to Value Investing is very nicely articulated which builds interest in this subject. I personally liked reading it.
+ well, it’s not a complete book, it just helped me and inspired me to read further to understand the fundamentals of investing instead of trying luck and making poor choices.