Value Investing in a Little Book

Just finished The Little Book of Value Investing by Christopher H. Browne. Not quite as riveting and quick a read as Joel Greenblatt's The Little Book That Beats the Market, but even so, Browne makes a very good case for why sticking to value investing and nothing else will do very well for one's entire lifetime!

Some classic quotes from The Little Book of Value Investing :

Like Watching Grass Grow :

"Value investing also requires the mettle to buy those stocks that the majority of investors don't want to own. They have warts. They are out of favor. Of course, they are. Why else would they be cheap? Whey you go to cocktail parties and the talk turns to recent stock picks, one guy can say, "I bought Ionosphere Communications this morning at 10 and it closed at 12." Instantly, he is a genius. Forget that Ionosphere Communications has no sales and no earnings and is a disaster waiting to happen. You feel a bit foolish saying, "I bought ABC Ice Cream Corporation at half of book and 6 times earnings." You are greeted with a big yawn. Sex sells even in the stock market, and everyone wants to own the latest sexy issue. Value stocks are about as exciting as watching grass grow. But have you ever noticed just how much grass grows in a week?" p.149

A Style for the Long Run :

"Benjamin Graham laid out the basic concepts of the value approach to investing many decades ago. Like Graham, I have no faith in my ability, or in the ability of most others, to predict the direction of stock prices over the short term. I do not believe that many people can detect which technology stock will be the next Microsoft or which ones will bomb. What I do know is that owning a diversified portfolio of stocks that meets the standards of a margin of safety and are cheap, based on one or more valuation methods, has proven to be a sound way to invest my money. I have no reason to believe it will not continue to be so." p.163


The Little Book of Value Investing is definitely an undervalued investment.

Case Study: Tiens Biotech

Tiens Biotech Group USA Inc. (TBV) is a "nutrition supplement and personal care products" company in China. The company has 1,350 employees, and its particular business focus of marketing Chinese nutritional wellness and dietary products seems to be a segment that has not yet reached its full market potential in the United States. An investment in TBV is nice because it is also an instant diversification into foreign currency, something Warren Buffett did with his recent purchase of Iscar Metalworking. According to Barron's, the CEO of TBV has a salary of $145,455. It's refreshing to be able to invest in a healthcare company without CEO financial fiascos like that of Unitedhealth Group (UNH).

Some Statistics
The company has an extremely low debt/equity ratio of 0.094.
Price/earnings is also low at only 8.098.
The short interest as a percentage of public float is 4%, which is extremely high for a small company like TBV, which only has a market capitalization of 208 million.
Its 52-week range is 2.61 - 8.24, which gives this stock some significant potential.
Pre-tax return on capital greater than 50%.

Concluding Thoughts
This is an undervalued healthcare company that has relatively little downside due to its high earnings yield of 16% and low market capitalization. If the company becomes any more undervalued, it has the potential to be acquired by a larger healthcare company looking to gain a foothold in both China and wellness products at the same time. This would be something that I would look to hold for the long-term, expecting high volatility in the short-term but the potential for extremely high appreciation in the long-term.

TBV update
Additional post from November 7, 2006. A stock-price prediction from Beacon Equity, and a news report that makes the case for a potential acquistion down the line.

On My Reading List

Books to get to:


The Little Book of Value Investing
Christopher H. Browne
Turning into an interesting addition to my building trove of value investing books.

You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits
Joel Greenblatt
After finishing The Little Book That Beats The Market, I simply had to pick up Greenblatt's first work.

The Standard & Poor's Guide to Selecting Stocks
Michael Kaye
This one was a gift. It's in a simple chapter format so it's a pretty easy read. I am enjoying the chapters on ways to screen for value investing, as well as ways to look at different industry sectors.