Value Investing

In the simplest terms, value investing is buying an asset for less than it’s worth. At Weitz it is about finding a well-run company with outstanding long-term prospects and investing at a time when its stock is selling at a discount. And if the stock isn’t selling at a discount, it’s about having the discipline and patience to wait until the price comes our way.

Origin of value investing

Benjamin Graham, regarded as the father of value investing, coined the term "margin of safety" and considered it to be the central concept to value investing.  This margin is the difference between what we believe the company’s intrinsic value is and the price of the stock. As value investors, we first measure what an informed buyer might pay for a whole business, and determine if the stock price reflects that appraisal.

Determining a company’s value

At Weitz Investments, we’ve spent the last three decades fine-tuning how we value a company. Because we tend to stick with industries we understand well, each of our analysts develops an instinct for when a company within their circle of competence may be undervalued. From there, we analyze the financials, assess the company's management, and determine the company’s place in its industry. We also calculate the present value of the company's estimated future free cash flows. Now, we’re in a position to determine what an informed buyer would pay for the company outright.

Waiting for our price

We want to buy stocks at prices well below the company’s business value. Once we assess what we believe a company is worth, we can determine what its stock price should be in the current market. Typically, we’d like to see a stock price at a 40-50% discount before we’re interested. If we find a well-run company with excellent prospects that’s NOT selling at a discount, we wait until the price turns in our favor.