Off late, I find myself reading a lot of material on investing in general and value investing in particular . A few months back, I was searching for podcasts on iTunes and came across this excellent podcast by a professional value investor. The show is called “Value Line Observer” by the Value Guys. The website is http://www.thevalueguys.com/. Here is the The iTunes link to the show.
In the show, the professional investor who calls himself ‘Val’ presents three stock ideas from the weeks Value Line Investment Survey. Value Line is a provider of in-depth financial information both online and in print form. I have never subscribed to Value Line but have heard a lot of good things about the quality of information provided by it.
The show goes back 5 years and you can find all the editions on iTunes or from his website. You can also subscribe via an RSS feed. Needless to say, I find the show excellent. Val starts out with a ‘rant’ section which he now calls ‘It would help my portfolio if….’. This is where he talks about things/changes that he desires that would help us investors and our portfolios. The usual topic is around taxes and then other times its about regulations etc.
The next section is where the real fun starts. Val talks about one idea at a time. He usually starts with the valuation of the company and why he is attracted to it. He explains it in really simple terms. He typically uses the EV/ EBITDA as a measure of valuation. He then computes the inverse of that and refers to it as the ‘earnings yield’. (If you have read a previous post, you would notice that in the Magic Formula, Greenblatt uses EBIT as part of the earnings yield.) So, a company at 7x EBITDA offers a 14% yield. He refers to it as the ‘cash on cash return’. Remeber, this is a pretax number and an estimate of cash flow. He then looks at the growth rate forecasted by Value Line and adds this to the yield to come up with a total pre-tax return measure. He likes to see this number at 20% or higher.
He will then talk a bit about the company and its business/products, its operating margins, returns on capital and balance sheet. Some times he has indepth knowledge of a company if he has researched it for his ‘shop’ or has owned it.
All in all, I consider this podcast an excellent use of 30 minutes of your week’s time. I highly recommend this podcast to any student of investing who wishes to learn more about investing and what a professional investor looks for in an investment idea. This is a good way to get introduced to three companies a week and build on your knowledge base.
Finally, thanks to Val for putting this show out for the last five years. I wish he continues to do so in the future. He is doing a noble service to us fellow investors.