Dear Reader,
Attached is our latest list of stocks passing value screens (low P/E, low EV/EBITDA, etc.), which don’t meet our investment criteria - and our reasoning.
This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.
For reports of stocks that pass our quantitative and qualitative standards:
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Nick Train: Investor Chronicle Interview
A rare (and under-viewed) interview of the media-shy Nick Train - a successful UK money manager with a focus on holding concentrated positions in high-quality companies over long periods of time. Some notes below:
2:30 Dividends/Repurchases/Organic Growth
Train criticizes excessive dividend payouts of UK companies - one reason that UK equity markets have underperformed the US recently.
Dividends and repurchases should be subsumed to profitable organic growth opportunities. (18:45).
Otherwise, large repurchases of undervalued stocks are enormously beneficial for continuing shareholders who get a larger share of future earnings and assets on attractive terms. (16:45)
15:45 Good businesses at a discount
The objective of investors should be to get valuable properties at a discount (see discussion of Burberry at 32:30, and Diageo at 39:45).
Regardless of market price movements, the investor should retain his focus on the operating results and dividend returns of his holdings.
20:30 Large Proprietary Data/AI
"Companies that possess large amounts of proprietary data that's unavailable to others" are likely to benefit most from advances in AI.
30:45 Qualitative factors
Train watches out for a) market share gains and losses; and b) pricing power: the ability of a business to maintain the real price of its product without losing volume.
38:45 Stewardship
When you're entrusted with others' savings (as we are), your responsibility is to protect the real value of those savings over long periods of time.
This is why the margin of safety (primarily), and attention to business quality is important in selecting your investments.
42:00 Sell policy/Inactivity
"Selling is hard" - Like Templeton, Train requires compelling reasons to replace his holdings. He mentions a five-year period where he didn't purchase a single stock (and performed well).
It's difficult to find many valuable ideas - the investor makes his money owning his businesses i.e. on inactivity rather than frequently trading in and out of positions.
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