Ridgewood is being interviewed tomorrow during an online webinar on the topic – Value Investing: What Every Investor Needs to Know. See below for the details.
Value Investing: What Every Investor Needs to Know
Webinar: Thursday Jan 24, 2013 12pm ET, Register Here
Join us on Jan 24th for a short 30 minute presentation on “Value investing: What Every Investor Needs to Know”. Value Investing is a proven strategy that has been implemented by the investment greats. Though Warren Buffett is the most famous (and wealthy) value investor in the world – there are many others who are lesser known, including Benjamin Graham, David Dodd, Charlie Munger, and Seth Klarman. Many investors have used value investing as the basis for establishing successful track records spanning several decades or more.
Just like shoppers look for bargains and sales, value investors apply this idea to stocks and other investments with similar success. In this educational seminar, Noah Rosenfarb, CPA of Freedom Wealth Advisors will interview Kaushal “Ken” Majmudar, JD, CFA, the Chief Investment Officer of Ridgewood Investments. In 30 minutes we will cover:
- What Is Value Investing?
- How and why stocks and other investments become undervalued
- How to identify and benefit from uncovering value in your investments
- Review and discuss some of the famous Value Investors and their methods (including Warren Buffett)
- Different schools of value investing and how value investing can be implemented in investment portfolios
We have reserved 15 minutes for Q&A.
When: Wednesday January 24th 12-12:45 ET
Where: To register for the webinar click here.
If you would like to listen but cannot make the live call, you can email us at email@example.com and we can send you a replay link.
We have enclosed articles (see links below) that highlight some interesting aspects of the current economic climate. They discuss the current extremely low interest rate environment (courtesy of the Fed).
The common theme on these articles is the unintended consequences arising out of policy decisions made by the Federal Reserve and by Congress. Through the end of August, the summer has been characterized by renewed fears of a “double dip” recession. As a result, investors have been fearful of investing in businesses in favor of investing in long-term, government bonds. To a great extent, investors are responding to their fears arising out of their recent traumatic experiences in investing in equities – both over the last few years, as well as, over the long-term (last 10 years). In prior commentaries, we have noticed that the bond market (particularly on the long-end) may be a bubble that may ultimately create issues down the road.
The articles below suggest that in manipulating rates (in an effort to “goose” economic activity), the Federal Reserve is creating winners and losers. In the losing column are the millions of retirees and savers who are earning little or nothing on their cash and bank balances while, at the same time, being fearful of equities and high yielding securities. As a result of this, we’ve noticed that certain dividend paying stocks seem attractive relative to the alternatives.
In the winning column, however, are borrowers. Corporations are refinancing their obligations at a rapid rate. For example, On August 12, 2010, Johnson & Johnson raised $1.1 billion in new borrowings. Half of the notes mature in 10 years and carry a rate of only 2.95% per year. The other half mature in 30 years and carry a rate of only 4.5%. Investors who are loaning money to them at these rates may be surprised (especially with respect to the 30 year notes) if, as is likely, inflation rises unexpectedly.
On the other hand, it is an excellent time to refinance a mortgage (if you qualify under today’s somewhat tighter underwriting standards). At The Ridgewood Group, we eat our own cooking. I just refinanced my own mortgage about 30 days ago and got a 30 year amortizing mortgage at the rate of 4.375% with very low (approx 1%) points. (BTW, compare this rate to what you are quoted by your bank or mortgage broker – for the benefit of our clients, we believe we have found 2 of the lowest cost mortgage lenders in the country and we find that their rates (for borrowers with good credit) seem to be better than most of the other alternatives. If you are thinking of refinancing and want a referral to these lenders, email or call us back to find out how you might be able to take advantage of their programs.
As a result of the above, my borrowing rate on the new mortgage is only slightly higher than what Johnson & Johnson has to pay! For the astute among you, you’ll notice that the rate I pay on my 30 year mortgage is actually slightly lower – however this is not an apples to apples comparison – because my mortgage is amortizing and the J&J bond is not, the weighted average life of my mortgage is closer to 20 years than to 30 years, so the imputed rate that I pay is actually higher on an adjusted basis. Also I had to pay a small amount upfront to buy down the rate slightly, but my payback on the buy down is less than 2 years given the savings in the form of the lower interest rate.
Ken Majmudar, JD, CFA
We’ve been cautious about real estate (especially residential real estate) for a few years now. As a firm that focuses on value investing (quality when it is cheap or cheaper) we tend to have a contrarian orientation. To paraphrase Buffett, when everyone is greedy, we often feel fearful. Over the last few years, real estate prices have risen disproportionately in comparison to levels that could have been justified by the underlying fundamental drivers like demographics and income. The divergence has been fueled by access to larger sums of leverage from an increasing number of undisciplined lenders. Predictably increasing leverage fueled increasing prices which then also lead to a reflexive (as in George Soros’ theory of reflexivity in markets) shift in the psychology of participants.
In the last few months, the nature of this poor lending has come to light, especially in the subprime space. However, there is a good chance that there are more shoes to drop (or as Churchill once quipped, “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning”). Millions of americans today probably own more house than they can afford. While incomes are rising, the unwinding of the leverage fueled bubble in real estate has probably only just begun. As this purging/unwinding process picks up steam, there will undoubtedly be pain encountered by hundreds of thousands of borrowers and the institutions that lent to them. Eventually, of course the Fed will respond to this deflationary headwind by easing and when it does, it will provide a bit of breathing room to the financial system.
Of course, the future is uncertain. Large conservatively financed companies are generally out of favor and may holdup better if the above scenario is even partially right. Being a value investor focused on purchasing these companies with a long-term view also does not hurt.