Link to original video by Talks at Google

The Art of Value Investing | John Heins & Whitney Tilson | Talks at Google

Short Summary:

This talk focuses on the concept of value investing, a strategy that emphasizes buying undervalued stocks and holding them for the long term. The speakers, John Heins and Whitney Tilson, discuss key principles of value investing, including the importance of a circle of competence, variant perception, and understanding the downside risk. They use Google as a case study to demonstrate how a company's growth and potential can sometimes be overlooked by investors, leading to mispricing. The talk also highlights the importance of discipline, humility, and a long-term perspective in value investing.

Detailed Summary:

Section 1: Introduction and Overview of Value Investing

John Heins introduces the book "The Art of Value Investing" and its purpose: to guide aspiring equity investors through the process of developing their own investing philosophy and strategy.
He emphasizes the importance of understanding the core principles of value investing, which are rooted in Ben Graham's framework of identifying the intrinsic value of a company and buying when the market price is significantly lower.
Heins highlights the diversity of opinion among successful value investors, emphasizing that there is no single "right" approach.

Section 2: Key Principles of Value Investing

Circle of Competence: Investors should focus on industries and situations they understand well, where they can gain an edge over the market.
Variant Perception: Successful investors identify and understand the reasons why a stock is mispriced, going beyond simply recognizing that it is cheap.
Downside Risk: Value investors pay significant attention to the potential downside of an investment, considering what could go wrong and assessing the potential for loss.
Emotional Control: Investors must be able to control their emotions and avoid panic selling or chasing short-term gains.

Section 3: Google Case Study

Whitney Tilson shares his personal experience with Google, highlighting a previous article where he dismissed the company as overvalued and likely to fail.
He acknowledges his mistake, attributing it to underestimating Google's moat and the powerful virtuous cycle that drives its growth.
Tilson analyzes Google's current valuation, noting that while it trades at a premium, it is not unreasonable given its growth rate and strong fundamentals.
He suggests that Google's core business may be even more profitable than it appears, considering the expenses associated with its new ventures like Google Fiber and self-driving cars.

Section 4: Practical Advice for Investors

Tilson emphasizes the importance of patience and discipline in investing, suggesting that index funds are a good option for those who lack the time or expertise to actively pick stocks.
Heins suggests that investors can find value-oriented mutual funds that offer a diversified portfolio while adhering to value investing principles.
Both speakers highlight the importance of understanding the reasons behind mispricing, emphasizing that simply recognizing a stock as cheap is not enough.
Tilson advises investors to consider their own networks and relationships when seeking investment opportunities, particularly in areas with high growth potential and emerging companies.

Section 5: Addressing Market Volatility and Value Investing in Today's Market

The speakers acknowledge that market sentiment can be volatile and that value investing may be more challenging in a market with high valuations.
They suggest that investors should be patient and avoid chasing short-term gains, focusing on high-quality companies with strong fundamentals.
They emphasize the importance of being counter-cyclical, avoiding the tendency to pile into stocks at market peaks and sell at lows.
Tilson recommends holding more cash and taking smaller position sizes during periods of market uncertainty.

Section 6: Conclusion

The speakers reiterate the importance of discipline, humility, and a long-term perspective in value investing.
They acknowledge the challenges of finding successful value investors but maintain that it is possible to identify managers with a proven track record and a sound philosophy.
They encourage investors to continue learning and adapting their strategies to the evolving market landscape.