Comments on: Less Room to Fall for Value http://www.jonathangoldberg.com/2009/09/less-room-to-fall-for-value.html Investment ideas, research findings and general discussion of all things value investing. Sun, 15 Aug 2010 07:32:58 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: pritchie http://www.jonathangoldberg.com/2009/09/less-room-to-fall-for-value.html/comment-page-1#comment-31 pritchie Thu, 03 Sep 2009 14:03:05 +0000 http://caratsplus.com/?p=26#comment-31 Although it is almost certainly true (don't have the data to back this up...) that a basket of stocks trading below intrinsic will dip less than the average in a downturn I don't think this is their greatest advantage.<br /><br />The margin of safety seeks to provide protection against *permanent loss*. Short term fluctuations can and will result in paper losses. <br /><br />A stock purchased solely for the future growth potential of the stock itself seeks no such protection.<br /><br />For me, this is the greatest advantage of value over growth. Although it is almost certainly true (don't have the data to back this up…) that a basket of stocks trading below intrinsic will dip less than the average in a downturn I don't think this is their greatest advantage.

The margin of safety seeks to provide protection against *permanent loss*. Short term fluctuations can and will result in paper losses.

A stock purchased solely for the future growth potential of the stock itself seeks no such protection.

For me, this is the greatest advantage of value over growth.

]]> By: Jonathan Goldberg http://www.jonathangoldberg.com/2009/09/less-room-to-fall-for-value.html/comment-page-1#comment-30 Jonathan Goldberg Wed, 02 Sep 2009 22:03:23 +0000 http://caratsplus.com/?p=26#comment-30 Well said, pritchie. What I meant about value investments is that perhaps they have less room to fall than growth as they are already well below true value.<br /><br />Thank you for the comment.<br /><br />Best,<br />Jonathan Well said, pritchie. What I meant about value investments is that perhaps they have less room to fall than growth as they are already well below true value.

Thank you for the comment.

Best,
Jonathan

]]> By: pritchie http://www.jonathangoldberg.com/2009/09/less-room-to-fall-for-value.html/comment-page-1#comment-29 pritchie Wed, 02 Sep 2009 21:48:23 +0000 http://caratsplus.com/?p=26#comment-29 Daily price fluctuations are mostly noise and watching them too closely can be very dangerous psychologically (we tend to feel negative emotions more strongly than positive ones).<br /><br />Fooled by Randomness by Nassim Taleb has a great example of this (table 3.1 p65). If we assume a hypothetical stock w/ 15% gain and 10% volatility per year we would expect see a daily increase in the price 54% of the time. *inversely* the stock would be down 46% of the time.<br /><br />Daily fluctuations have lots of noise but very little signal.<br /><br />Also, it's good to keep in mind that buying below intrinsic value offers no guarantee that the price will not decline further...<br /><br />Overall I agree with you, watch for press releases and especially new financial statements. Daily price fluctuations are mostly noise and watching them too closely can be very dangerous psychologically (we tend to feel negative emotions more strongly than positive ones).

Fooled by Randomness by Nassim Taleb has a great example of this (table 3.1 p65). If we assume a hypothetical stock w/ 15% gain and 10% volatility per year we would expect see a daily increase in the price 54% of the time. *inversely* the stock would be down 46% of the time.

Daily fluctuations have lots of noise but very little signal.

Also, it's good to keep in mind that buying below intrinsic value offers no guarantee that the price will not decline further…

Overall I agree with you, watch for press releases and especially new financial statements.

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