If you are looking to make a good investment, it might seem counterintuitive to chase after the stocks that are plummeting. But that is precisely the principle behind value investing, said a prominent value investor at the Gabelli School of Business on Dec. 9.
Michael Price, president of the Price Family Foundation, Inc. and managing member of the New York-based hedge fund MFP Investors, offered students and alumni a glimpse into the world of value investing, the methodology behind the success of professionals such as Warren Buffett.
Developed in the 1930s by Benjamin Graham, value investing involves buying stocks that are trading for less than their intrinsic value. The presumption underlying this strategy is that the stock market overreacts to good and bad news, which means that even small setbacks could cause a company’s stock prices to fall. If the company is strong, these prices will eventually rebound.
To value investors, this temporary drop represents an opportunity to buy into a valuable company while the price is unusually low. The trick, however, is to scout around for companies that are in this situation.
“You want to go where the action isn’t. When we read the newspaper in our office, we look for the earnings that disappoint, not the ones that increase,” Price told a standing-room-only crowd gathered at Fordham’s Lincoln Center campus.
“It’s our job as value investors to pick through all the paper that Wall Street prints and find those pieces of paper, whether bonds or stocks, that are too cheap based on their underlying asset value.”
The task requires patience as well as ingenuity, Price said, and you must be willing to go out on a limb.
“But that’s what’s fun about this business,” he said. “Every morning you wake up and ask, ‘Where can I find value?’ It’s not what Wall Street wants to sell you. You have to look the other way. You want to go where no one else does.”
The event was part a lectures series sponsored by Fordham’s Gabelli Center for Global Security Analysis, which promotes the study and practice of value investing. Launched in 2013, the center was created as part of the historic gift to Fordham from the school’s namesake, Mario Gabelli, GABELLI ’65.
In addition to the lecture series, the center sponsors conferences for academics and practitioners, alumni networking events, and an undergraduate concentration in value investing.
“Fordham is one of the very few business schools that offers value investing at the undergraduate level,” said James Russell Kelly, director of the center. “The program is growing rapidly. We currently have 77 students studying value investing, and in January we’re launching our first graduate course.”