Value investing was first invented by professor Benjamin Graham in his classic “Intelligent investor”. His timeless wisdom includes the concepts of Mr. Market and Margin of Safety. Professor Graham’s most popular student is Mr. Warren Buffett, known as the Oracle of Omaha, the Chairman and CEO of Berkshire Hathaway Inc.
We studied professor Graham and Warren Buffett as well as well-known value investors such as Charlie Munger (Buffett’s friend and vice chairman of Berkshire Hathaway Inc.), Philip Fisher (the author of Common Stock and Uncommon Profits), Walter Schloss (professor Graham’s student, Buffett’s friend), and many others. The study took us more than 3 years but gave us confidence that value investing works and we can be successful. We have been investing in Vietnam using what we learned from professor Graham and Warren Buffett.
Vietnam’s stock market is relatively new. Investors mostly focus on short-term gains by speculating that stocks would go up or down. A scan at public companies using professor Graham’s investing criteria or net-net approach (net networking capital per share is greater than the company’s stock price) would result in many hits, which mean many companies in Vietnam are selling for less than their liquidated values. This was the approach that professor Graham used more than 60 years ago and Warren Buffett used with great success in his first 20 years.
VinaDong allocates a small portion of our capital to invest in those net-net companies. We will continue to do this as long as we can still find companies that sell for less than their liquidated values.
Our majority of capital, however, will be allocated to companies that meet the investment criteria that we will discuss. These criteria were tested with our money during the time we studied value investing and proved to be successful with VinaDong since it was formed.
The criteria were also time-proven by the success of Warren Buffett and many other value investors. The main idea is to find good companies that are selling at reasonable prices so as to have enough margin of safety. The criteria are as following:
Company with understandable business
Company that will last forever and we are comfortable with holding it for at least 5 to 10 years, preferably forever.
Company with record of attractive profits
Company with limited debt and sufficient cash
Company with high barriers to entry
Company that has low reinvestment cost
Company is selling at reasonable price