When you hear someone say something in the news or on social media like “Value stocks were up [or down] today” they are either (1) talking about value as a statistical factor or (2) are confused about the difference. To illustrate, the difference, Charlie Munger was not talking about value as a statistical factor when he said: “All intelligent investing is value investing — acquiring more that you are paying for. You must value the business in order to value the stock.” What Munger means is: are there any types of intelligent investing where the objective is to pay more than an asset is worth?
Mar 3, 2018 - Vista Equity Partners Standard Operating Procedures. Today, Vista Equity Partners has approximately $6 billion in committed equity capital. The firm, founded by Robert F. Smith, uses a disciplined, scalable process to evaluate investment opportunities and achieve maximum value-add for all transactions. Not every buyout firm that raised a fund in 2007 can say that it is on track to triple its investors’ money, but Vista Equity Partners isn’t your average private equity firm.
There are some assets for which an intrinsic value can’t be easily computed, but that is a different question than whether an asset should be purchased at a discount to its value. A business like Apple or Amazon can be a value stock if you are engaged in value investing as an analytical style. A disciplined buyer like Vista only buys a security or asset when they can make the purchase at a price which represents a bargain when compared to its value. Buying an asset for more than it is worth hoping some greater fool will buy it for even more in the future, is neither disciplined nor investing.
Another Columbia graduate named Warren Buffett believes: “The very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid?
Consciously paying more for a stock than its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation.” Another point that has been made by Munger is also relevant to what Smith is talking about in the first quote in bold above. Munger has made it clear several times that Berkshire is a buyer of moats. Munger has said: “We buy barriers. Building them is tough.” Vista is also a buyer and not a builder of moats from scratch.