Book Review: The Little Book of Value Investing

This is a book by Christopher Browne of the Tweedy Browne fame. They originally used to buy and sell illiquid stocks and then started money management. They have been value investors since Benjamin Graham's time (Walter Schloss worked in their offices), infact he was one of their regular clients. While this was a good read, it is for someone who does not know much about value investing and is a begineer to investing in general. They are the very old school type of value investors and focus on P/B, P/E metrics and are not afraid to go around the world to find value. There were some examples that Chris Browne cited which were useful in forming a prospective.

An example could be the Japanese insurers are selling for 1/3 BV, because the securities in their books are marked at cost and the stock market has had a big run up. They buy these insurers, the regulators change the rules and they can mark the securities at market now and they made some good money. Although, this sounds like a good value investment, but there are a lot of 'if's' in this case, because you are levered to the stock market. What if the market fell? A recent example of this could that Bill Ackman bought Wachovia right after the IRS announced a big change in how the firms can carry the tax losses. Wachovia now has $21 billion of these losses and consequently Wells Fargo announced made a big to acquire it for $15 billion (trumping Citi's FDIC brokered bid)! So knowing these things helps, but now you really need to be very very fast than back in the 1980's when Tweedy Browne bought the shares.

I read this book a couple of weeks ago; he in general about what to look for in a Balance Sheet and the Income Statement. He also presents some research on value stocks vs. other strategies over the long term. There are many other examples of European stocks and relative valuations and how in Europe they don't pay as much attention to the stock market as the US does; the various crises including the Russian debt default, Mexican Peso Collapse, the Asian defaults and the opportunities that arose. A good book, an easy read; buy it if you are starting out and want to get a good introduction to value investing.