Value Investors Look to the Future

 
Not all of our editors work at the Cabot offices in Salem, Massachusetts, but they drop in from time to time for us to discuss how things are going now and where we want them to be in the future. We were fortunate enough to have J. Royden Ward, who lives in Florida and is the editor of Cabot Benjamin Graham Value Letter, in the office this week recapping his recent trip to New York City to attend the Value Investing Congress.

Roy attended the two-day conference earlier this week where he was able to network with other expert value investors, hear informative speakers and get a fresh perspective on the current economic crisis. It was Roy's first time at the Congress, but he said he would be glad to go back again as the experience was invaluable.

Most of the other attendees were money managers or hedge fund managers, with a few newsletter editors or individual investors. There was plenty of time to talk to them between and after the sessions, and Roy very much enjoyed networking with other value-investing experts. Talking about what stocks other value investors are interested in as well as the methodology they used to reach that decision was interesting and Roy found others intrigued by his use of Benjamin Graham's system in Cabot Benjamin Graham Value Letter.

If you're unfamiliar with Roy's style of investing, here's a quick rundown. As editor of Cabot Benjamin Graham Value Letter, Roy selects undervalued stocks that he believes will increase in value over time. Roy employs the stock selection criteria of Benjamin Graham, through a computer model Roy developed with his college professor, Dr. Wilson Payne, to pick the companies recommended each month.

The stocks are bought below a Maximum Buy Price that Roy sets using Graham's criteria and usually are held for one to two years until they reach their Minimum Sell Price. This might not sound as sexy as accelerating growth but it works well in any market and has brought an annualized return of 20% since its inception more than 80 years ago.

The Congress saw attendees from around the world, some even hailing as far as Australia (it took them 22 hours to get to New York City), and they provided unique perspectives on the global economic turmoil. The speakers and attendees were among the top value investors in the world and the event was truly a meeting of great minds in the industry.

Most of the speakers were gloomy about the current economic situation, but they also expressed hope that the market would turn around and told the nearly 500 attendees not to despair. These investors are in the market for the long haul and acknowledge that there will be ups and downs along the way, with the general long-term market trend being up. The speakers urged their fellow investors to look for investments beyond the next year, as few investors are doing that as fear in the market has reached a fever pitch.

The speakers also pointed to many investments that they believe are clearly undervalued in the current market that they believe will be great long-term buys. Most of the investors at the conference are looking to buy and hold for about four to five years, or even longer if the investment is still fruitful. While Roy didn't hear about any great buys he wasn't already aware of, he was happy to hear that others are also viewing some of the very low-priced stocks in the market as great undervalued buys.

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The founders of the Value Investing Congress, John Schwartz and Whitney Tilson, spoke first at the conference and gave a thorough history and analysis of the mortgage crisis.  Roy relayed to me that they stayed up until the wee hours of the morning before the conference updating the ever-changing numbers related to the credit crisis, showing the constantly evolving nature of the situation and their dedication to providing an insightful program.

Schwartz and Tilson said that while they believe the situation is bad right now, we would dig our way out of it, on way or another. They praised the resiliency of the markets in the past and said they believed the markets would prove resilient once again after they recover from the current situation.

Some of the speakers praised the bailout as a way to save banks and mortgages by buying up the faulty ones. Only time will tell whether this was the right decision, but a few said they firmly believed it would put the U.S. on the path to recovery. Most speakers stayed away from discussing the election except to say that whoever wins will inherit some very large economic problems that will need to be dealt with to put the U.S. markets back on track.

Other speakers extensively quoted Benjamin Graham, the father of value investing. One particularly appropriate quote was something Graham said in 1929 about a borrowing and liquidity crisis. Roy said that Graham's words could have been uttered six months or a year ago and been as true then as they were nearly 80 years ago.

Some speakers focused on the next step of the crisis and many said the thing to do would be to invest in the emerging markets. Those markets are down even more than the U.S. right now, leading many in this group of investors to believe that the emerging markets are due to rebound in a big way. Many at the conference said they believed the emerging markets are hugely undervalued right now and will recover in even better shape than the U.S. because they have more rapid growth and don't have some of the big problems that the U.S. is facing.

Other speakers touched on alternative energy stocks, but quite a few were still betting on oil and natural gas. Almost no one was in favor of investing in the financial sector, except for one money manager who was the second largest shareholder in Wachovia next to Warren Buffett. And I've got to tell you, in this crowd, he's just about the best guy to be second to. Others praised Buffett's investment in General Electric (GE) and said they looked to him for leadership in this field of investing.

While many of the speakers and attendees admitted that the market had clobbered them this year, most were very optimistic that in time the market would rebound. Nearly all of them are invested for the long haul and understand that market fluctuations are just a part of the game.

Roy will be bringing you more stories and information from his trip in a couple of weeks when he writes an issue of Cabot Wealth Advisory. If you have any questions, comment or suggestions about this or any topic, please email us or comment on our blog, http://www.iconoclast-investor.com

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Golden Opportunities in the Financial Crisis
 
It's October 2008 and the markets appear like the leaves on an autumn tree ... falling.
 
Yet here at Cabot, thanks to good stock selection in 2007, and good market timing in 2008, Cabot Market Letter has actually been able to hold onto a 22% total gain since the start of last year, versus a loss of more than 28% for the S&P 500. Editor Michael Cintolo has used a growth stock selection system and market timing indicators honed for 38 years to keep investors out of the market during bad times and in the best stocks during good times.
 
His steady advice has helped subscribers retain much of their 2007 gains, even with the current bear market and economic turmoil.  Cabot Market Letter's proven system has found leaders even in this tumultuous market, like the #1 oil stock, Continental Resources (CLR), recommended in April of this year, just before it doubled within three months.
 
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In case you didn't get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, we have links below to each issue.

Cabot Wealth Advisory 10/6/08 - Investing in Health Care

On Monday, Timothy Lutts wrote about the rising cost of health care in the U.S. and what could be done to fix the problems that the country is facing in this area. Tim praised the advances in genetic medicine and biotechnology and discussed why these are his favorite investments. Tim also discussed a stock that's been featured in Cabot Wealth Advisory a few times recently and is poised to be a leader of the next bull market. Featured stock: Sequenom (SQNM).

http://www.cabot.net/Issues/CWA/Archives/2008/10/Investing-in-Health-Care.aspx

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Cabot Wealth Advisory 10/9/08 - A Warning for Bargain Hunters

On Thursday, Paul Goodwin wrote about why you shouldn't take any action in the stock market until it actually turns. Paul reminded readers of three basic growth stock investing rules to keep in mind: follow the market's trend; cut your losses short; and let your winners run. He also wrote about a stock with an interesting take on life insurance. Featured stock: Life Partners (LPHI).

http://www.cabot.net/Issues/CWA/Archives/2008/10/Warning-for-Bargain-Hunters.aspx

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Cabot Wealth Advisory 10/10/08 - Don't be Fooled by These Misconceptions

On Friday, Michael Cintolo recounted how he became interested in the stock market and how he learned to do what's right and avoid what's wrong when investing. Mike also debunked several investment myths, ranging from the value of insider selling to the value of diversification to the wisdom of considering tax implications when taking profits.

http://www.cabot.net/Issues/CWA/Archives/2008/10/Investment-Misconceptions.aspx

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Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Editor's Note: The wild fluctuations of the market this year have investors scrambling for what to do with their money. We have a solution: Cabot Benjamin Graham Value Letter. If you want to safely invest your money over the long term, this method is for you. It's how Warren Buffett achieved his billionaire status and how you can protect your investments while still seeing big returns. Since the 1930s, Benjamin Graham's timeless value investing approach has achieved returns of 20% per year with low risk regardless of the market's ups and downs. Today, Roy applies his system to two models in the Value Letter. Since inception in 1996, Roy's Wise Owl Model has achieved a compound annual return of 16%, and since inception in 2003, Roy's Classic Benjamin Graham Value Model has achieved a compound annual return of 22.4%. Click the link below to start safely investing and earning money the Warren Buffett way.

http://www.cabot.net/info/bgv/bgvir02.aspx?source=ew01

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Stock Picks

Tesla Motors

If Tesla ever begins to cut back on development and innovation costs, earnings will soar.

Alibaba

China seems to be raising up its very own version of Amazon in Alibaba (BABA.

Facebook

Roy Ward uses the PEG ratio to determine if the stock is undervalued or overvalued.

Cabot Wealth Advisory

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