Larry Pitkowsky recently had the opportunity to chat with Douglas Heikkinen of Advisorpedia for a thoughtful and wide-ranging discussion about GoodHaven’s philosophy, outlook and the current investment landscape.
Below is an excerpt from the interview in which Larry discusses what value investing is and is not.
Douglas Heikkinen:
I mentioned you’re value investors in the opening. What is value investing and what is not, in your opinion?
Larry Pitkowsky:
Doug, value investing, in our view, is trying to look at stocks as if they are part ownership, which they are of a real business, trying to make investments in those securities when you feel you’re getting a lot more than you were paying and that you are purchasing something at a material discount to what you think the underlying value of the business is. I think it also means you are primarily a fundamental investor, you are a long term oriented investor. And I think the market where prices bounce around all the time is there to serve you not to guide you. You’re not sitting around every day drawing inferences from every little squiggle in the stock price. You’re trying to use those squiggles to be opportunistic for yourself and your clients. What I think value investing is not; it is not the need to have a draconian and negative view of the world all the time. It does not mean you need to buy the statistically cheapest securities out there that may be inferior businesses run by inferior people with crummy balance sheets. And I think sometimes those things get a little bit lumped in with value investing. So I think that the most important tenants of value investing are investing with a margin of safety, being long term oriented and thinking of stocks as little pieces of businesses, which is what they are.
Douglas Heikkinen:
Has being a value investor been tough this year, or has it been advantageous?
Larry Pitkowsky:
I think, first of all, over time, value investing has been shown, if done exceptionally well, it’s not an easy game to exceed at, if done exceptionally well, has the potential to provide investors with above average returns and less risk. That is the whole goal. I think we had seen some froth and speculation in certain parts of the market. In the recent past, periods where there is froth and speculation are often a bit harder for value investors because you have a price discipline, you know, so I think those periods can be harder. And we also went through some periods in the recent past where there was an enormous amount of focus on a handful of companies. You
know, some of it warranted, some of it not. And again, there was enormous amount of speculation. That has changed quite a bit over the last year or so. Interest rates are higher, there’s inflation, there’s even more volatility than there has been in the past. And so I think it has been a good climate for opportunistic value investors to find new potential investments, but I don’t think I am one to have been complaining too much over the last couple of years, in my opinion, it’s just you wake up every day in search of intelligent things to do with capital, you find them rarely. And there are times when you just gotta get up earlier and go to sleep later and work harder. And there are times when there’s more to do. And that’s just part of how things work.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.