Value investing is an old idea which originated with Benjamin Graham in 1930s America, but it continues to generate excess returns. Academic studies have confirmed that an investor buying cheap shares in a neglected company is ultimately likely to be better rewarded for the risk he takes than one buying into the market’s most popular stocks.
To put it simply, value equities are cheap shares. For Sparinvest, true value exists only in those companies whose balance sheets are robust but whose shares are trading at a discount of a minimum of 40%, compared to their intrinsic value. It is this discount that provides a ‘margin of safety’.
Sparinvest’s value investment objectives are:
- To preserve the capital of our investors by evaluating downside risk before we consider upside potential
- To provide investors with superior long-term positive returns from value investments
- To remain disciplined towards our value investment philosophy at all times
- To buy the business and not the stock
Our prudent attitude towards risk and our commitment to a deep analysis of business fundamentals means that we were able to provide our investors with a degree of immunity to speculative frenzies such as the dot-com bubble of the late 1990s.
The merit of our investment process is demonstrated by:
- Our track record
- Our ratings from top European ratings agencies
- Our success in selecting companies for our portfolios that subsequently become the subject of takeover bids from other companies or financiers that have identified their intrinsic value in the same way. Approximately one third of the companies we have exited have become acquisition targets.
For a more detailed description of Sparinvest’s Value Equities strategy and the academic evidence supporting it, please click here.