Value Investing: A Global Perspective

1. Value Investing:A Global Perspective Abdulaziz A. Alnaim, CFA President & Fund Manager Mayar Capital Management

2. Value investing:a global perspective Abdulaziz A. Alnaim, CFA

3. Contents • History • Value Investing 101 • Academic Studies • Value Investing Today

4. History of Value Investing The principles behind value investing were first codified by Benjamin Graham and David Dodd in their 1934 book, Security Analysis Graham later expanded on that by publishing The Intelligent Investor (1949)

5. History of Value Investing • Graham taught value investing at Columbia University for 28 years. • Many of his students, such as Warren Buffett and Walter Schloss, went on to apply his investing principles very successfully over many decades

6. Value Investing 101 “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” -- Benjamin Graham

7. Video: Introduction to Value Investing

8. Value Investing 101 Invest in a security only if it is trading significantly below conservative estimate of its intrinsic value. This is called the Margin of Safety principle Intrinsic Value Margin of Safety Market Price The most important principle shared by all value investors

9. Value Investing 101 The Margin of Safety serves two purposes: • Provides a good cushion should the investor make an error in the estimate of the security’s intrinsic value or some unexpected event changes it • Provide excess return as valuation normalizes (from cheap to fair value)

10. Shopping for Bargains Value Investing = Trying to buy $1 bills for $0.50

11. Shopping for Bargains When shopping for clothes, we can find such “bargains” at outlet malls 50% 30% 70% 50% last year’s fashion Overlooked merchandise “Slightly” damaged goods Pure Junk … Unfortunately, no outlet malls exist for securities

12. Shopping for Bargains “Be fearful when others are greedy. Be greedy when others are fearful.” -Warren Buffett “The investor’s chief problem and even his worst enemy is likely to be himself.” - Benjamin Graham

13. Shopping for Bargains Where do we findrealbargains? • General market decline • Whole industry going out of favor • Under-followed companies (not on the radar of institutional investors - e.g. small companies) • Temporary negative event

14. Video: Value Investing: Buy Cheap Obscure and Out of Fashion

15. Value Investing Works Many of history’s greatest investors were value investors: Benjamin Graham Walter Schloss Warren Buffett Charlie Munger John Templeton Max Heine Michael Price Martin Whitman Bruce Berkowitz David Einhorn Joel Greenblatt Bruce Greenwald Seth Klarman They out-performed the market over decades by applying the value investing strategy

16. Value Investing Works Early Studies: One-Dimensional Description of Value • Basu (1977) • Rosenberg, Reid, Lanstein (1985 ) Second Generation: Multi-Dimensional Description of Value • Fama & French (1992) • Basu (1983) • Lakonishok, Shleifer, Vishny (1994 ) Fama & French 3 Factor Model Successes • High Minus Low (HML) factor (1993) • Multi-factor success with LSV portfolios (1995) Source: Value Investing Retrospective, A Heilbrunn Center for Graham & Dodd Investing Research Project conducted by Andrew Dubinsky

17. Value Investing Works • In Works in Japan • Lakonishok, Hamao, Chan, "Fundamentals and Stock Returns in Japan", 1991 • It works in US, Japan, UK, France, Germany, Italy, Netherlands, Belgium, Switzerland, Sweden, Australia, Hong Kong, Singapore • • Fama & French, "Value versus Growth the International Evidence", 1998. • … and tens of other studies over the years Source: Value Investing Retrospective, A Heilbrunn Center for Graham & Dodd Investing Research Project conducted by Andrew Dubinsky

18. Value Investing Works Sample period: 1/1975-12/1995 Fama, E. and French, K., “Valueversus Growth the International Evidence” (1998).

19. Value Investing Today Difference in Methods • Redefine elements of Intrinsic Value (starting with Buffett): franchise value, intangibles, growth • Simple “statistical” doesn’t work like it used to

20. Elements of Value Source: Greenwald, Bruce, et al (2004). Value Investing: From Graham to Buffett and Beyond. Wiley. Growth Earnings Power Earnings Power Uncertainty newer elements of value Asset Value Asset Value Asset Value Stronger Franchise (“moat”)

21. Value Investing Today More Global • Bigger universe, more areas to find hidden value • Business is more global  competition may come from the other side of the world

22. Value Investing Today More Global • Value Investing spread to Europe and more recently to Asia and MENA • Seeing more funds with “value” in their name or description, especially in the hedge fund space • Value investors are still a rare breed in MENA (and elsewhere)

23. Value Investing Today • Being in New York or London used to have its advantages--and it’s disadvantages. • Many great value investors preferred being away from the crowd Warren Buffett – Omaha John Templeton – Bahamas Charlie Munger – Los Angeles Bruce Berkowitz – Miami

24. Value Investing Today • History proves that Value Investing gets into and out-of fashion every few years • I expect to see more of it (and other style-specific investing) in our region going forward

25. Thank You

26. Contact Information Abdulaziz A. Alnaim, CFA aziz@mayarcapital.com T: +966 3 847 7504 M: +966 50 383 5506