$$ Charles Brandes on Ben Graham

Charles Brandes on Investing Lessons from Benjamin Graham (click to open .pdf)

Some notes

• Stock prices and bond prices fluctuate in value a lot more than the actual underlying value of the security that you own. The reason for that is fear and greed, human behavior
• I’ve been doing this type of investing for over 40 years, and I haven’t seen anything different from what is happening today. The “funk” is a normal thing after we have been through a recession and a bear market.
• Risk, as the academics define it, is wrong. For a long-term investor, risk has to do with how well companies do. The academics define it as just price changes, or their volatility. That is true for speculators. Price changes and volatility in the short term is risk for speculators, but not for investors. So academics’ explanation of why stocks outperform bonds is not the right explanation.
• The positive earnings surprise really is a surprise for value stocks, because nobody expects it at all. If you’re looking at the very cheapest stocks, there is no expectation there of them doing anything good. The stock prices will rise considerably in those instances. We found in a study by the Brandes Institute that it is so considerable that that is one of the reasons why value stocks outperform. This is the part that is really surprising. For the cheapest value, non-glamour stock, even if the earnings surprise is negative, the expectations for these companies are so negative that the stock price still goes up over time, because even if they report anything – it’s amazing. We found this in our study over many years about these earnings surprises.