What is Value Investing?
The value investor thinks like the owner of a company with a vision for long-term growth rather than quick quarterly returns. Value investing takes patience, the strength to distinguish fads from stable opportunities, and superior analytical skills—qualities that SVI delivers.
Value investing is a long-term strategy based on purchasing shares of companies at less than their intrinsic value. Intrinsic value is the discounted present value of the future free cash flow available for distribution to the owners or for growing the company. Value investors select companies that offer a strong likelihood of producing free cash flow greater than alternative low-risk investments, such as a ten-year U.S. Treasury Bond. SVI chooses companies with sustainable high profit margins, foreseeable long-term health, and are likely to deliver higher returns than a ten-year Treasury.
Over the long term, value investments outperform the Standard and Poors'
500 (S&P 500).* SVI intends to hold company shares for the long term (there are some special situation exceptions) but will sell when the economics of a company deteriorates, the company stock becomes overpriced or a better opportunity is discovered. SVI consistently monitors clients’ investments and actively researches the internal workings of a company to make sure your investments are working for you.
Proof that it works
Leading investment managers Warren Buffett and Benjamin Graham have become financial giants using the value investing approach. Forty-four academic studies discussed in What Has Worked in Investing demonstrate that the value investing style outperform the stock market over long periods of time. For example in the period of 1963 to 1990, low price to book ratio stocks outperformed high price to book stocks by 23% annual rate of return vs. 14% (p. 8). From 1957 to 1971 low price to earnings (P/E) stocks returned 16% annually compared to 6% for high P/E stocks (p.15). For the period 1966 to 1984 the results were 14% versus 6% (p. 15). Go to the Resources page to read this booklet on line and for additional resources on value investing.
* Past performance is not necessarily indicative of future results. Clients cannot invest directly in an index.