Value Investing is the Way to Go
Rajen Sheth Talks to Kavita Chhibber
I have always loved investing but my journey really began when I was in College.
When I went to College, my father did two things. First, he told me to buy the Wall Street Journal and read it every day. Second, he took a small amount of money from his brokerage account, put it in my name, and gave me his broker’s number. And then he said, “Now you figure out what to do with that money.”
So I started dabbling in every form of investment possible in the public market. I did well in some areas, poorly in others, but along the way I found a stock that was selling for 45,000 dollars a share and I said what is that company? It turned out to be Warren Buffet’s company, Berkshire Hathaway. Today, a single share of Berkshire is priced at over 80,000 dollars.
I was really intrigued and wondered, Who is this person, What company is this? What does he do? I started collecting and reading books and anything else on Buffet, and went on to read his mentor Benjamin Graham’s books like Intelligent investor, Security Analysis and absolutely loved what I read. In fact I moved to Atlanta to work with my dad in evaluating industries and companies.
As I continued to go through the quagmire of investment options, I ran my own venture capital company as an angel investor making small investments of 25,000 to 50,000 dollars. The late 90s was the time to do this kind of stuff.
In fact, I created a organization called, the Telecom Investors Forum (TIF), which had a group of 28 Venture Capital investors, comprising over $1 billion in investment capital, working together to invest in companies in the telecom and Internet infrastructure space. But through it all somehow I could never get comfortable with investing in these early stage companies. I could never really determine what was real and what wasn’t, whether that company was going to make it or not even if everything looked good on the surface.
Then the market fell apart and I had a 180 degree turn in my attitude about what makes a good investment. I realized that it is better to have a conservative view and framework to investing, instead of trying to get into the high risk high reward kind of a set up. I wanted to find a way to outperform the general market over long periods of time, while taking less risk, and having a greater margin of safety. That is what value investing is all about. If you look at the 70 year record of value investing since the time Benjamin Graham wrote about it, and see Warren Buffet’s track record and compare it with the S&P 500’s stock index you can see the vast difference.
That is when I decided to switch gears and was introduced to my current business partner Brian Harper--who was called a junior Warren Buffet by the friend who made our introduction. His personal track record was impeccable. From March 2000 to March 2003 the S&P fell 41 percent, but Brian’s investments increased 258 percent. There was no magic there. It was a result of investing in good solid cash flowing businesses that were extraordinarily undervalued.
The market is not rational on a short term basis. It can take the best companies and inflate their value to ridiculous levels only to have the bubble burst. The silliest thing we do is to ask big, long term businesses how they are doing every 90 days. There is nothing rational about measuring a business against a 90 day period. The biggest disservice the market does to investors is to provide a price every single day.
Today my partner Brian Harper and I make solid, value oriented investments, and generally hold for a long period of time. Over the past two and a half years since we started, the fund has had returns of 72%, and if measured against mutual funds, we would rank in the top 10 percent of all funds in the country.
For us the key issue is, what is the cash flow worth and how good a business is it? Can we go to bed at night knowing that ten years from now this company will still have a solid business? We own one of the largest cement companies in the world. It’s not sexy but it is solid business. We also own the largest funeral home in the world…everyone dies…it’s a very stable business. We also own one of the largest tire companies in the world. Tires have been around for 80 + years, and 10 years from now they will still be in demand.
The key thing is to know the right time to buy and the right time to sell. Strangely most people get excited about buying stocks when the market has already gone up. They don’t realize that the way you make money is buy low and sell high. If you consistently follow some simple basic rules, you can out perform the stock market.
RAJEN SHETH is a Managing Director for Insight Capital Management, LLC. At Insight Capital, Mr. Sheth is responsible for co-managing the value-oriented investment fund. Mr. Sheth is also a Managing Director of Pinnacle Real Estate Partners, LLC, a real estate investment company. As a Manager, Mr. Sheth is responsible for the day-to-day operations of the company as well as managing its long-term growth. Mr. Sheth manages a variety of real estate properties including commercial, residential, and land in the Metro Atlanta area. Mr. Sheth has several years of experience in real estate and is well versed in property management, leasing and development. Prior to his current activities, Mr. Sheth founded Infiniti Ventures, LLC, a venture capital, strategy consulting, and mergers and acquisitions advisory firm. Mr. Sheth has worked for numerous companies in the United States, Europe and Asia. He also created the Telecom Investors Forum (TIF), a group of 28 Venture Capital investors, comprising over $1 billion in investment capital, who worked together to invest in companies in the telecom and Internet infrastructure space. Mr. Sheth earned his Bachelor of Arts in Economics from the University of Illinois and his MBA with honors with a concentration in Marketing and Finance from the University of Southern California. Mr. Sheth is a Mentor Member of The Indus Entrepreneurs (TiE) and a member of the Executive Team for the Atlanta CEO Council.
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