This week I’m talking with Vitaliy Kastanelson, money manager, writer at contrarian edge and host of the investment podcast investor.fm. I’ve come across Vitaliy on the Real Vision YouTube Chanel, and the InvestED podcast and I’m asking the question today – “What is value investing?”

The value investing framework is very useful in determining some rules you could follow to help inform your buying decisions.

https://www.investopedia.com/terms/v/valueinvesting.asp

So What Is Value Investing?

Value investing is an investment strategy that involves picking shares that appear to be trading for less than their intrinsic or book value. Value investors don’t believe in the efficient market hypothesis, that the share price takes into account all known information – they believe the market overreacts to good and bad news. This over-reaction brought on by investor sentiment means that every now and then, you can pick up shares for below their intrinsic value. 

If you want to know a bit more about value investing principles by the way, check out ‘investing with tom’ on Youtube  – I highly recommend Toms videos as he’s a Kiwi, and he’s got a really good approach to breaking down this concept well.

I like the golden rule for value investing that Julian McCormack shared with me recently on episode 88: ‘Just shut up and buy cheap stocks’. 

But , good news for the everyday investor – You don’t have to be a brilliant analyst or be super smart to be a value investor, but it’s best if you follow a few simple rules they all seem to live by, specifically::

• Practice patience. This means – don’t be afraid of doing research on a company then saying no
• Don’t follow the herd, and don’t be afraid to be contrarian. In today’s episode we discuss why Vitaliy purchased Uber but not Tesla recently.
• Don’t just buy the market – value investors will generally only invest in a handful of companies that they know well – if they are successful in this effort, they aim to get a return that’s above the market.
• Try to understand the business and think like a business owner, not just as an investor. This isn’t a game you’re trying to win, this is about partnering with successful pre-existing businesses.
• Buy with a margin of safety. The idea here is you purchase when the share price is at a set level, say 50-70% of what the intrinsic value is for the shares. This margin of safety can cover a multitude of sins (poor research, external events, negative investor sentiment etc).

Vitaliy Kastanelson is an interesting guy and has a super interesting background. Steeped in the realities of socialism growing up in soviet Russia, I think it gives him a unique perspective on current events. We’ve tasted in NZ, some of the fruits of socialism in a way recently, as we’ve been in level 4 lockdown here. Many have received government assistance via the wage subsidy, and many have welcomed the idea of trading our freedom for the greater good (in this case, to eliminate a virus). We’ve allowed the government to decide who can go to school, who can go to work, which businesses must die, and which are deemed essential. We’ve cheered a bit when those ‘trouble-makers’ who defiantly flouted the lockdown rules, were brought to justice. What do you think of this? 

In another podcast I was listening to, and I’ll pop the link into the show notes for you, I heard Vitaliy talk about his life growing up in soviet Russia – if that’s of interest to you check it out: https://www.ruleoneinvesting.com/blog/podcast/235-vitaliy-katsenelson-part-1/

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Where to find Darcy Ungaro:

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