Zen- Vesting: The Road to Graham-and-Doddsville (2)

"In character, in manner, in style, in all things, the supreme excellence is simplicity." (Henry Wadsworth Longfellow)

The knowledge taught by the old guards to “Value Investing” was mainly a certain quantitative framework toward stock selection. What to look for in financial statements and what to dismiss. It is a simple framework. And it is my belief that most “Value Investors” are much better off in that simplicity.

For some time, a great many of so called "Value Investors" starting to talk about that there is more to “Value Investing” than just the numbers. And many fellow investors have concluded that more must be learned and done. So, the crowd grew less careful about who they are as an investor and their circle of competence.

The simplicity of “Value Investing”, and its plain and open virtue outlined by the old masters, is nowadays often dismissed. And “Value Investing” turned into a dark and complex science. The new masters of “Value Investing” tell their disciples to think about moats and to discount the distant, unknown cash- flow into the present by using dubious discount rates. They are preaching that it is worth paying up for wonderful business. Or even worse, to dismiss the price being paid for a business at all and concentrate solely on the quality of the business.

There is no doubt that the argument: “It takes more than just the numbers to identify a great company” is justified as far as it goes. But such arguments are wicked. Because often they are taken too far. They are wicked because they lead fellow investors to focus their attention on the company way too much, and dismiss the cheery price paid too easily.

Furthermore, do these "Value Investors" forget to tell their fellow investors that if wickedness was simple, simple remedies also were sufficient to guard against it. But as complexity has taken root and spread through the value investing community, the need to make use of stronger remedies increased too.

Reference:

Frances and Henry Hazlitt; The Wisdom of the Stoics; University Press of America 1984