In simple terms, value investing is buying an asset for less than it’s worth. At Weitz, it’s about finding a well-run company with outstanding long-term prospects and investing when its stock is selling at a discount to its intrinsic value. And when its stock is not selling at a discount, it’s about having the discipline and patience to wait for the price to come our way.
Value driven, private-buyer mindset
Benjamin Graham, regarded as the father of value investing, coined the term "margin of safety" and considered it to be value investing’s central concept. This margin is the difference between our calculation of a company’s intrinsic value and its current stock price. As value investors, we first measure what an informed buyer would pay to own the whole business, then we determine if the stock price reflects that appraisal. The greater the difference between price and value, the greater the potential return.
Determining a company’s value
We have spent over three decades fine-tuning our valuation process. We analyze the financials, evaluate the management team and determine the company’s place in its industry. We also calculate the present value of the company’s estimated future free cash flows. It is our deep analysis that positions us to determine what a knowledgeable buyer would pay to own the business outright.
Valuation is our North Star. Once we’ve assessed a company’s value, we can determine what its stock price should be today. Our aim is to buy shares at a discount to intrinsic value. If a well-run company with excellent prospects is not currently selling at a discount, we place the company on our fully vetted actionable investment list and wait for the price to turn in our favor.