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Getting Started in Value Investing (Book Review)

July 10th, 2015

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This blog post was originally published on the MoneyGeek.ca blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.

Summary

Getting Started in Value Investing is a book written by Charles S. Mizrahi, Managing Partner of CGM Partners Fund LP and Editor of Hidden Value Alert, a value-oriented advisory newsletter.

Its written with the beginning investor in mind and aims to provide readers a thorough introduction to value investing. Each of the chapters explores a different issue or principle related to the subject, and ultimately attempts to accomplish a specific task: this can be debunking some of value investings misconceptions; explaining its basic concepts and history; demonstrating how to apply it successfully; and teaching how to avoid common mistakes along the way.

Mizrahi, a long-time investor who describes himself as an ardent follower of Warren Buffett, takes a leaf out of the Oracles book and presents his knowledge in a simple, casual, and genuinely inviting way.

The result is a body of work that strives to champion a long-standing notion: namely, that an investor can successfully select stocks that will, in the long-run, generate consistent and above-average returns if he or she adopts a value investing approach.

Evaluation

At its core, Getting Started in Value Investing delivers on the promise implied by its title: it supplies readers with enough information and guidance to help jumpstart their investment activities.

Readers of all backgrounds will appreciate Mizrahis highly-personal, easy-to-digest style of introducing case studies, quotes, and anecdotes to explain a rather vast subject. Although experienced practitioners/readers will not find much value in definitions of free cash flow or profiles of the most renowned investors, those who fit this bill certainly will, finding a fair primer within these pages that, at the very minimum, establishes a foundation to work from.

Arguably, the books strongest areasand the ones in which Mizrahis discussion appears to be the most naturalare the sections concerning business and financial analysis. While certainly nothing groundbreaking, the explanation of what makes the perfect value investment (great management, competitive advantages, financial strength, and fair price in relation to value) is surely a refreshing one that offers original insight; something which is, unfortunately, not to be found throughout the rest of the book.

Indeed, Mizrahi cites a number of sources to support his arguments; the problem, however, is that they tend to heavily concentrate around a small pool of value investors, especially Buffett, who is mentioned so often that readers cannot be blamed for sometimes thinking he is the co-author, if not the actual author. This overreliance on a handful of investors to furnish the evidence only appears worse when combined with the fact that Mizrahi hardly conducted any deep, independent research of his own. Much of the data can be found by doing a quick Google search (as the author even suggests); and the rare times he does offer his own unique analysis, other than in the topics mentioned above, the conclusions turn out to be highly simplistic and predicated almost entirely on the insights of his predecessorsits as if Mizrahi simply recycled and restated knowledge already known, without attempting to do otherwise, thus rendering his work unavoidably redundant.

Furthermore, the astute reader will find many an occasion where Mizrahi posits an assumption or claim without ever supporting it with any piece of evidence, other than his own opinion. Frequently, such a sweeping generalization is assumed to be common sense; yet, the reader will never know the truth of a statement like [I]n most years, more than 90 percent of institutional investors underperform theS&P 500 index without ever being informed of the source or time period in question. Add on top of this, an unwillingness to concede to alternative or opposing viewsthereby making the discussion more balancedand the reader may be tempted to disregard this book completely as a poor defense for an otherwise sound investment strategy.

What truly would have offered readers a more accurate portrayal would have been a more balanced selection of sources that went beyond mere quotes to critically analyze some of the areas where value investing clearly is not for everyone or can be abused and present some dangers, as in the case of value traps.

Overall Impression

Frankly, the book offers nothing new or exciting in regards to a style of investing already well-established and accepted. If pressed to choose between this book and a similar title, I would most likely encourage readers to put this one back on the shelf; there are simply much better explanations to value investing out thereone of them being the shareholder letters of a particular investor Mizrahi is quite fond of paraphrasing: Warren Buffett.

Final Rating: 2.5 Stars

Disclosure:Neither the author nor MoneyGeek receives any compensation for promoting this book

Najim Mostamand is an investment freelance writer, helping individuals and institutions craft creative content for their investment platforms. Before starting his own writing business, Najim graduated from the University of California, Irvine, studied Creative Writing at Oxford University and served as a Financial Advisor at Morgan Stanley, while also completing levels I and II of the CFA Program. Now, he is engaging audiences with a new style of writing, one he calls a fusion of Wall Streets no-nonsense, analytical rhetoric and Main Streets creatively-personal self-expression.

This blog post was originally published on the MoneyGeek.ca blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.