When people look at Warren Buffett they think of him as a Value Investor. That is the biggest joke in the investing world. WB is an active investor who seeks value in his investing (like all of us). WB is not a fund manager. He is a businessman. He constantly buys business, evaluates them on a regular basis and then takes a call. He has still not taken a call on Coca Cola, but he has sold big chunks of Walmart. Selling Walmart is taking a punt on Amazon.

You see value shifting, your portfolio has to shift too.

Remember V I is about the following

• Constantly finding value scrips
• evaluating scrips and deciding which to keep and which to sell
• Taking Re-Investment risk
• holding timing – how do you know that the FULL value is realized?

So when you buy, create a small history note (philosophy statement on why you are buying that share, aka investment diary) where you record your facts, and your feelings. This will help you decide when to sell. Very rarely can a share stay in your portfolio for more than 3 years without giving you a feeling that the value is realized (Graham’s holding period suggestion). So value investing cannot be passive investing. There has to be a constant churn and you have to think every year about where to invest the dividends – that cash flow is bound to accumulate in an accumulation stage portfolio.

Suppose you have bought a share for Rs. 100 and you expect to get 16% pa return. You were brilliant and this company also gives you a 5% dividend yield. So the appreciation that you expect is only 11% in a year. Assuming that the price at the end of the year is Rs. 112, clearly you have achieved the target. However you do not have another share to buy…will you sell because you have reached your target or stay on till you find another share?

No author on Value Investing is clear about how much of the return should come from dividends and how much from appreciation. For Buffett, the return that he is getting in Coca Cola or Gillette is just the dividends. Can he afford to stay invested when the interest rates are going up? Importantly he has been under performing the benchmark for the past 10 years at least.

Unlike the above case, what if the gap does not close so sweetly..but you have got a mid level performance – and the share has reached 107. So you now have a 12% return. HOWEVER, even this 12% is maintainable ONLY if you can re-invest this Rs. 5 in a share which is likely to give you 16% return. Assuming that you find one with that kinda potential, should you just invest the dividend or sell of this share (A) and reinvest the whole amount in the new share (say B). So again some action is required – in every share. That itself makes VI active investing, and along with that is the associated costs. One way of improving returns is of course trading in the particular share. Say you have 10,000 shares of Coromandel International. You always get a chance to play it on the way up as well as on the way down. However, to improve returns you may have to play with say just 3000 shares – with a risk that some other investor may think of it as a good buy – and the price may not come down. However if you play with 500 shares, the transaction frequency, and opportunities may be difficult to achieve.

Remember Value investors get good selling opportunities because people are willing to significantly over pay for growth….think about it.

Do you think I should be writing a 50 page book on Value investing? what say?