Value Investing with Sage

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What You’ll Learn

1. ✅ Understand what value investing is and why it works
2. ✅ Identify undervalued stocks using key metrics (P/E, P/B, P/S)
3. ✅ Calculate intrinsic value to determine if a stock is “on sale”
4. ✅ Distinguish between value traps and genuine opportunities
5. ✅ Use Sage to find value stocks that match your criteria
6. ✅ Build a value-focused portfolio from scratch
7. ✅ Understand the patience required for value investing success

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What is Value Investing?

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The Philosophy

“Price is what you pay. Value is what you get.” — Warren Buffett

• Short-term bad news (temporary problem, not permanent)
• Sector-wide sell-offs (baby thrown out with bathwater)
• Lack of attention (boring companies nobody talks about)
• Fear and panic (emotional selling)

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Historical Performance

• From 1927-2020, value stocks outperformed growth stocks by ~3% annually
• 10,000 invested in value stocks (1927) = \~90 million (2020)
• Same amount in growth stocks = ~$30 million
• Fama-French research shows “value premium” persists across decades

• Warren Buffett - Turned $10,000 into$300+ billion using value principles
• Benjamin Graham - Father of value investing, mentor to Buffett
• Charlie Munger - Buffett’s partner, focused on “wonderful companies at fair prices”
• Seth Klarman - Baupost Group, 20%+ annual returns for 40 years

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Value vs. Growth Investing

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Key Value Investing Metrics

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Metric #1: Price-to-Earnings (P/E) Ratio

P/E Ratio = Stock Price / Earnings Per Share (EPS)

• Stock trades at $100
• Company earns $5/share (EPS)
• P/E = $100 /$5 = 20

• S&P 500 average: 15-20 historically
• Value territory: P/E of 10-15
• Deep value: P/E under 10
• Expensive: P/E over 25

• Compare P/E to industry peers (not just absolute number)
• Tech companies often have higher P/E (30-50+) - that’s normal
• Banks/industrials typically have lower P/E (8-15)
• Negative P/E = company is losing money (avoid for value investing)

Hey Sage, I'm looking for value stocks with P/E ratios under 15 in the following sectors: [Financials / Industrials / Energy / Healthcare].

Can you suggest 5 stocks that:
1. Have P/E under 15
2. Are profitable (positive earnings)
3. Have solid fundamentals (not cheap for bad reasons)
4. Include brief explanation of why each might be undervalued

I want to build a value portfolio focused on established companies.

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Metric #2: Price-to-Book (P/B) Ratio

P/B Ratio = Stock Price / Book Value Per Share

• Company’s total assets minus total liabilities
• What shareholders would get if company liquidated today
• Also called “equity” or “net worth”

• Stock trades at $50
• Book value per share is $40
• P/B = $50 /$40 = 1.25

• P/B under 1.0: Trading below book value (potential bargain)
• P/B 1.0-3.0: Reasonable for most companies
• P/B over 3.0: Expensive (paying big premium over book value)

• Banks and financial institutions (assets are mostly cash/securities)
• Manufacturing companies (lots of physical assets)
• Real estate companies

• Tech companies (assets are intangible: software, patents, brand)
• Service businesses (value is in people/processes, not physical assets)

Hey Sage, can you screen for financial stocks (banks, insurance) with:
- P/B ratio under 1.5
- Profitable last 12 months
- Dividend yield over 2%
- Market cap over $5 billion

I'm looking for undervalued financials for my value portfolio.

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Metric #3: Price-to-Sales (P/S) Ratio

P/S Ratio = Market Cap / Total Revenue
OR
P/S Ratio = Stock Price / Revenue Per Share

• Company has market cap of $10 billion
• Annual revenue is $5 billion
• P/S = $10B /$5B = 2.0

• P/S under 1.0: Very cheap (often undervalued or distressed)
• P/S 1.0-2.0: Value territory
• P/S 2.0-5.0: Fair to moderately expensive
• P/S over 5.0: Expensive (growth premium)

• Works for unprofitable companies (unlike P/E)
• Harder to manipulate than earnings
• Good for cyclical industries (earnings vary, but sales more stable)

• Retail companies
• Airlines and transportation
• Cyclical industrials
• Early-stage companies (not yet profitable but generating revenue)

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Metric #4: PEG Ratio (P/E to Growth)

PEG Ratio = P/E Ratio / Earnings Growth Rate

• Stock has P/E of 20
• Earnings growing at 25% annually
• PEG = 20 / 25 = 0.8

• PEG under 1.0: Undervalued (growth justifies or exceeds P/E)
• PEG around 1.0: Fairly valued
• PEG over 2.0: Overvalued (paying too much for growth)

• A stock with P/E of 30 might be cheap if earnings are growing 40%/year
• A stock with P/E of 10 might be expensive if earnings are declining

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Metric #5: Dividend Yield

Dividend Yield = (Annual Dividend / Stock Price) × 100

• Provides income while waiting for stock to appreciate
• Dividend-paying companies tend to be stable (can’t fake cash payments)
• Forces companies to be disciplined with capital
• High yield can indicate undervaluation

• 3-6% yield: Solid income + reasonable safety
• Above 6%: Investigate carefully (could be distressed)
• Below 2%: Not really a value play (unless growth is high)

• Yield doubled overnight = stock crashed (why?)
• Payout ratio over 100% = dividend likely to be cut
• Dividend hasn’t grown in 5+ years = stagnant business

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The Value Investing Process

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Step 1: Screen for Value Candidates

Hey Sage, I want to screen for value stocks with these criteria:

Financial Metrics:
- P/E ratio: [range, e.g., 8-15]
- P/B ratio: [range, e.g., under 2.0]
- P/S ratio: [range, e.g., under 1.5]
- Market cap: [e.g., over $2 billion]
- Dividend yield: [e.g., over 3%]

Business Quality:
- Profitable last 12 months
- Revenue growth: [positive / stable]
- Sector: [specific sectors or "any"]

Can you suggest 10-15 stocks that fit these criteria with a brief explanation of each?

Hey Sage, I want to screen for value stocks with these criteria:

Financial Metrics:
- P/E ratio: 8-15
- P/B ratio: under 1.5
- Dividend yield: over 3%
- Market cap: over $5 billion

Business Quality:
- Profitable for last 5 consecutive years
- Positive free cash flow
- Sector: Financials, Industrials, Energy, Consumer Staples

Can you suggest 10-15 stocks that fit these criteria with a brief explanation of why each might be undervalued?

• List of 10-15 stocks matching your criteria
• Current valuation metrics for each
• Brief business description
• Reasons why the stock might be undervalued
• Any red flags to investigate further

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Step 2: Deep Dive Analysis (Pick Top 3-5)

Hey Money Monty, I'm considering [TICKER] as a value investment. Can you analyze:

1. VALUATION:
   - Current P/E, P/B, P/S ratios
   - How these compare to 5-year historical averages
   - How these compare to industry peers

2. FINANCIAL HEALTH:
   - Revenue and earnings trends (last 5 years)
   - Free cash flow generation
   - Debt-to-equity ratio
   - Return on Equity (ROE)

3. WHY IS IT CHEAP?
   - Recent news or events causing price decline
   - Temporary vs. permanent issues
   - Market sentiment

4. CATALYSTS FOR REVALUATION:
   - What could cause the market to re-rate this stock higher?
   - Any upcoming events (new product, restructuring, etc.)

5. RISKS:
   - What could go wrong?
   - What would make this a "value trap" instead of true value?

Give me your honest assessment: Is this a genuine value opportunity or a value trap?

• Complete financial picture with trends
• Comparison to historical valuation and peers
• Specific reasons for current undervaluation
• Potential catalysts for stock appreciation
• Risk factors and red flags
• Clear buy/hold/avoid recommendation

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Step 3: Calculate Intrinsic Value

Intrinsic Value = EPS × Fair P/E Ratio

• Company earns $5/share (EPS)
• Historical average P/E is 15
• Industry average P/E is 18
• Conservative fair P/E estimate: 15

Hey Sage, can you help me estimate the intrinsic value of [TICKER]?

Use the following method:
1. Find the current EPS
2. Find the company's 5-year average P/E ratio
3. Find the industry average P/E ratio
4. Use the LOWER of the two as "fair P/E"
5. Calculate: Intrinsic Value = EPS × Fair P/E
6. Compare to current stock price
7. Calculate margin of safety

Is this stock undervalued based on this analysis?

Intrinsic Value = Annual Dividend / (Required Return - Dividend Growth Rate)

• Stock pays $3/year dividend
• You require 10% return
• Dividend has grown 5%/year historically

Hey Sage, can you calculate the intrinsic value of [TICKER] using the Dividend Discount Model?

Current annual dividend: $[amount]
Historical dividend growth rate: [%]
Required return: 10% (standard for stocks)

What's the estimated intrinsic value, and how does it compare to the current price?

Hey Sage, can you estimate the intrinsic value of [TICKER] using multiple methods:

1. P/E-based valuation (EPS × fair P/E)
2. P/B-based valuation (book value × fair P/B)
3. Dividend Discount Model (if applicable)
4. Discounted Cash Flow (if you can simplify it for me)

Then give me a range of intrinsic values and your opinion on whether the stock is undervalued at $[current price].

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Step 4: Identify the “Why It’s Cheap” Reason

• Example: All bank stocks down 20% due to rate fears
• Company fundamentals unchanged
• Market overreacting to macro news

• Company missed quarterly earnings by 2%
• Long-term growth story intact
• Stock sold off 15%+ on overreaction

• Industry in temporary slump (housing, commodities, travel)
• Company has strong balance sheet to weather it
• Will recover when cycle turns

• Nobody talks about it (utilities, industrials, consumer staples)
• Steady earnings, just not “sexy”
• Market ignores it, creating value

• Company spun off from parent
• Forced selling by index funds
• Fundamentals improving but market hasn’t noticed

• Example: Declining revenue for 3+ years
• Technology disruption (Blockbuster vs. Netflix)
• Can’t adapt to market changes

• Debt-to-equity ratio over 2.0
• Interest payments eating into profits
• Risk of bankruptcy

• CEO scandal, fraud, incompetence
• High executive turnover
• Consistently poor capital allocation

• Competitors have better products/tech
• Losing market share year after year
• No moat, no differentiation

• Entire industry shrinking (newspapers, landline phones, coal)
• No amount of good management can fix
• Fighting against inevitable trends

Hey Sage, [TICKER] is trading at what looks like a low valuation (P/E of [X], P/B of [Y]).

Can you investigate WHY it's cheap? Specifically:
1. What caused the recent price decline?
2. Is the underlying business deteriorating or is this temporary?
3. Is this a value trap (cheap for good reason) or a value opportunity (cheap due to overreaction)?
4. What's the bull case and bear case?

Be brutally honest - I want to avoid value traps.

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Step 5: Check for Margin of Safety

“Only buy stocks trading at least 25-30% below intrinsic value.”

• Protects you if your valuation estimate is wrong
• Provides cushion against unexpected bad news
• Gives room for stock to appreciate to fair value

• Intrinsic value estimate: $100
• Required margin of safety: 30%
• Maximum buy price: $70

• 30%+ margin = Strong buy
• 20-30% margin = Buy if high conviction
• 10-20% margin = Watch and wait
• <10% margin = Pass

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Step 6: Look for Catalysts

• Earnings surprise: Company beats estimates after quarters of misses
• New CEO/management: Activist investor or turnaround expert comes in
• Asset sale: Company sells underperforming division, unlocks value
• Dividend increase: Signals management confidence, attracts income investors
• Buyback announcement: Company buying back shares (reduces supply, increases EPS)
• Sector rotation: Investors rotating back into unloved sector
• Analyst upgrade: Major bank initiates coverage with “Buy” rating
• Inclusion in index: S&P 500 addition forces funds to buy

Hey Sage, I'm considering [TICKER] as a value play. Current price is $[X], intrinsic value is ~$[Y].

What potential catalysts could cause the market to re-rate this stock higher in the next 1-2 years?

Examples:
- Upcoming earnings reports or guidance changes
- Management changes or activist involvement
- Industry trends that could benefit the company
- Pending asset sales or restructuring
- Potential M&A activity

I want to understand what could unlock the value.

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Building a Value Portfolio

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Portfolio Construction Principles

• Minimum 10-15 stocks
• Spread across 5+ sectors
• No single stock over 10% of portfolio
• Mix of deep value, moderate value, and “value with catalysts”

• Value stocks can take 2-5 years to be re-rated
• Don’t expect quick gains
• Measure success in years, not months
• Dividend income helps you wait

• When a stock reaches intrinsic value (or above), consider trimming/selling
• Redeploy proceeds to new undervalued opportunities
• Don’t fall in love with stocks - be willing to sell when fairly valued

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Sample Value Portfolio ($10,000)

• 40% Deep Value (P/E <10, P/B <1.0) - Higher risk, higher potential return
• 40% Moderate Value (P/E 10-15, P/B 1.0-2.0) - Balanced
• 20% Value ETF (Diversification backstop)

• 10% Bank of America (BAC) - $1,000
• 10% Ford (F) - $1,000
• 10% Citigroup (C) - $1,000
• 10% Vale (VALE) - $1,000

• 10% CVS Health (CVS) - $1,000
• 10% Walgreens (WBA) - $1,000
• 10% AT&T (T) - $1,000
• 10% Pfizer (PFE) - $1,000

• 20% Vanguard Value ETF (VTV) or iShares Russell 1000 Value (IWD) - $2,000

• Blended P/E: ~11
• Blended P/B: ~1.3
• Average dividend yield: ~4.2%
• Annual dividend income: ~$420

• Value stocks historically return 10-12% annually long-term
• With dividends reinvested: ~12-14% potential
• Requires 3-5 year holding period for full revaluation

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Alternative: 100% Value ETF Portfolio

• 50% VTV (Vanguard Value ETF) - Large-cap value
• 30% VBR (Vanguard Small-Cap Value ETF) - Small-cap value (higher return potential)
• 20% VYMI (Vanguard International High Dividend Yield) - International value

• Instant diversification (1,000+ stocks)
• Low maintenance
• Captures value premium automatically
• Low fees (0.04-0.15% expense ratios)

• Can’t outperform (just match value index)
• Less control
• Lower yields than hand-picked portfolio

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Value Traps: What to Avoid

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Red Flag #1: Deteriorating Fundamentals

• Revenue declining 3+ consecutive years
• Profit margins shrinking
• Free cash flow turning negative
• Increasing debt levels

• Retail stock with P/E of 8 (looks cheap!)
• But revenue down 15% last 3 years
• Profit margins compressed from 10% to 3%
• This is cheap for a reason - AVOID

Hey Money Monty, [TICKER] looks statistically cheap (P/E of [X]), but I want to check for value trap signs.

Can you analyze:
1. Revenue trend last 5 years (growing, stable, or declining?)
2. Profit margin trend (expanding or contracting?)
3. Free cash flow trend (positive and growing, or negative?)
4. Debt trend (increasing or decreasing?)

Is this a value opportunity or a value trap?

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Red Flag #2: Unsustainable Dividend

• Payout ratio over 100% (paying more than earning)
• Dividend hasn’t grown in 5+ years (frozen = trouble)
• Free cash flow doesn’t cover dividend
• Recently cut dividend

• Stock yields 8% (looks attractive!)
• Payout ratio is 120%
• Dividend likely to be cut soon
• When cut, stock will crash further - VALUE TRAP

Hey Money Monty, [TICKER] has a high dividend yield of [%]. Can you verify if it's sustainable?

1. What's the payout ratio?
2. Does free cash flow cover the dividend?
3. Has the dividend been growing, frozen, or cut recently?
4. What's the probability of a dividend cut in the next 12 months?

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Red Flag #3: Cheap But Getting Cheaper

• Stock has low P/E for years
• Keeps getting cheaper
• “Dead money” - just sits there declining

• 3 years ago: P/E of 10, stock at $50
• 2 years ago: P/E of 9, stock at $40
• 1 year ago: P/E of 8, stock at $30
• Today: P/E of 7, stock at $25

Hey Sage, [TICKER] has had a low P/E ratio for several years, but the stock price keeps declining.

Can you check:
1. What's the 5-year stock price trend?
2. What's the 5-year earnings trend?
3. Is the business actually improving, or is this a slow decline?
4. Should I avoid this as a potential value trap?

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Red Flag #4: Heavy Debt Load

• Debt-to-equity ratio over 2.0
• Interest coverage ratio under 3× (earnings barely cover interest payments)
• Debt coming due soon (refinancing risk)

• Company has $10B in debt
• Only earns $500M/year (20× debt-to-earnings)
• If rates rise or business weakens, could face bankruptcy
• VALUE TRAP despite low P/E

• Debt-to-Equity under 1.0 = Very safe
• 1.0-2.0 = Manageable
• Over 2.0 = Risky (investigate carefully)

Hey Money Monty, what's [TICKER]'s debt situation?

1. Debt-to-equity ratio
2. Interest coverage ratio (EBIT / Interest Expense)
3. Any debt maturities coming due soon?
4. Is the debt level a concern for this company?

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Red Flag #5: Accounting Red Flags

• Frequent restatements of earnings
• Complex accounting (hard to understand)
• Auditor changes or disputes
• Large discrepancies between reported earnings and cash flow

Hey Sage, I'm looking at [TICKER] as a value investment. Can you check for any accounting red flags?

1. Any recent earnings restatements?
2. Has the auditor changed recently?
3. Are there any unusual accounting practices?
4. Is there a big gap between reported earnings and actual cash flow?

I want to avoid accounting fraud or manipulation.

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Using Sage for Value Investing

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Best Prompts for Finding Value Stocks

Hey Sage, I run a weekly screen for new value opportunities. Here's what I'm looking for this week:

MUST HAVE:
- P/E ratio: 8-15
- P/B ratio: under 2.0
- Profitable (positive earnings)
- Market cap: over $5 billion
- U.S. listed stocks

PREFER:
- Dividend yield: over 3%
- Revenue growth: positive or stable (not declining)
- Sectors: Financials, Industrials, Energy, Consumer, Healthcare

AVOID:
- Recent dividend cuts
- Negative free cash flow
- Debt-to-equity over 2.5

Can you suggest 10 stocks that fit this screen with a brief explanation of each?

Hey Sage, I want to find value stocks with upcoming catalysts. Please screen for:

VALUE CRITERIA:
- Trading below historical average P/E
- P/E lower than industry average
- Market cap over $2 billion

CATALYST CRITERIA:
- Recent management change OR
- Activist investor involvement OR
- Upcoming earnings report (where a beat is likely) OR
- Potential index inclusion OR
- Asset sale/restructuring in progress

Can you find 5-8 stocks that meet BOTH value criteria AND have a clear catalyst?

Hey Sage, I'm looking for potential turnaround value plays:

CRITERIA:
- Stock down 30%+ from 52-week high
- Company was profitable historically (last 5 years avg)
- Recent CEO change or new turnaround plan announced
- Debt-to-equity under 1.5 (not distressed)
- Market cap over $3 billion

AVOID:
- Secular decline industries (newspapers, etc.)
- Consistent revenue declines
- Recent dividend cuts

What are 5-7 potential turnaround candidates worth investigating?

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Value Analysis Prompts for Individual Stocks

Hey Sage, I want to do a complete value analysis of [TICKER]. Please provide:

SECTION 1: VALUATION
- Current P/E, P/B, P/S ratios
- 5-year historical averages for these ratios
- Industry peer comparison (3-5 similar companies)
- Is this stock cheap relative to history and peers?

SECTION 2: INTRINSIC VALUE ESTIMATE
- Using P/E-based method (EPS × fair P/E)
- Using P/B-based method (book value × fair P/B)
- Your estimated intrinsic value range
- Margin of safety at current price

SECTION 3: WHY IS IT CHEAP?
- What caused the stock to become undervalued?
- Is the reason temporary or permanent?
- Value trap risk assessment (1-10 scale, 10 = definitely a trap)

SECTION 4: QUALITY CHECK
- Financial health (debt, cash flow, profitability trends)
- Business quality (competitive position, moat, management)
- Any red flags I should be aware of

SECTION 5: CATALYSTS
- What could cause the market to re-rate this stock higher?
- Expected timeline for revaluation (if any)

SECTION 6: RECOMMENDATION
- Buy / Hold / Avoid with clear reasoning
- If Buy: Suggested position size (% of portfolio)
- If Avoid: What would need to change for you to reconsider?

Be thorough and honest - I want to make a well-informed decision.

Hey Sage, I'm deciding between [TICKER1], [TICKER2], and [TICKER3] for a value investment.

Can you compare:
1. Valuation metrics (P/E, P/B, P/S, Dividend Yield)
2. Financial health (debt, cash flow, profitability)
3. Business quality (which has the best competitive position?)
4. Growth prospects (which has the best runway?)
5. Risk factors (which has the most downside risk?)

Rank them from best to worst value investment with reasoning.

Hey Sage, I want to find "quality value" stocks - companies that are undervalued BUT also have strong fundamentals.

CRITERIA:
- P/E ratio: 10-15 (moderately undervalued)
- Return on Equity: over 15% (profitable, efficient)
- Debt-to-Equity: under 1.0 (strong balance sheet)
- Free cash flow: positive and growing
- Revenue: growing or stable (not declining)
- Dividend: paying and growing for 5+ years

This combines Warren Buffett's "wonderful companies at fair prices" with traditional value.

Can you find 8-10 stocks that fit this quality value screen?

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Patience: The Value Investor’s Superpower

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Why Value Investing Requires Patience

• Value stocks can take 2-5 years to be re-rated by the market
• Sometimes longer (7-10 years for deep value)
• You’ll often be “wrong” for 1-2 years before being proven right
• Your portfolio may underperform during bull markets

1. They sell too soon (give up after 6 months of underperformance)
2. They chase performance (switch to growth stocks during rallies)
3. They lack conviction (didn’t do enough research to hold through volatility)
4. They need excitement (value investing is boring by design)

“The stock market is a device for transferring money from the impatient to the patient.”

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How to Stay Patient

• Quarterly earnings (are they growing?)
• Revenue trends (improving or deteriorating?)
• Debt levels (being paid down?)
• Dividend payments and growth (increasing over time?)
• P/E ratio compression (is it re-rating higher?)

• Stock bought at $50 with P/E of 10
• 2 years later: Stock at $52 (only +4%)
• But: EPS grew from $5 to$6.50 (+30%)
• New P/E: $52 /$6.50 = 8 (even cheaper!)

• Buy stock at $50 with 4% yield
• Year 1: Collect $2/share in dividends
• Year 2: Collect $2.10/share (5% dividend growth)
• Year 3: Stock re-rates to $65, collect$2.20/share

• Capital gain: $15 ($50 → $65)
• Dividends: $6.30
• Total: $21.30 on$50 investment = 42.6% (12.5% annualized)

• Date purchased: [Date]
• Price paid: $[X]
• Investment thesis: Why is this undervalued? (2-3 paragraphs)
• Intrinsic value estimate: $[Y]
• Margin of safety: [%]
• Expected holding period: [years]
• What would prove me wrong: (Specific metrics or events)

• Is the thesis still intact?
• Have fundamentals improved, worsened, or stayed the same?
• Has the margin of safety expanded or contracted?

• Don’t get discouraged
• View it as an opportunity to buy more at lower prices
• Remember: Mean reversion is powerful (what goes down often goes back up)

• 1990s: Growth crushed value (tech boom)
• 2000-2009: Value crushed growth (tech bust, financial crisis)
• 2010-2021: Growth crushed value (tech boom 2.0)
• 2022-2024: Value outperformed (inflation, rate hikes)

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Value Investing Success Stories

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Case Study #1: Warren Buffett and American Express (1960s)

• 1963: American Express faced “Salad Oil Scandal” (fraud by subsidiary)
• Stock crashed from $65 to$35 (-46%)
• Market feared bankruptcy

• Core credit card business unaffected
• Brand reputation intact (people still using Amex)
• Trading at P/E of 10 vs. historical 20
• Margin of safety: ~50%

• Buffett invested $13 million (40% of his fund)
• Held patiently while others panicked

• 5 years later: Stock at $180 (5× return)
• Became one of Buffett’s greatest investments
• Held for decades, worth billions

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Case Study #2: Financial Crisis (2008-2009)

• 2008-2009: Financial stocks crashed 50-80%
• Bank of America: $50 →$3
• Citigroup: $55 →$1
• Wells Fargo: $45 →$8
• Market feared total collapse

• Not all banks would fail (government wouldn’t allow it)
• Some had strong balance sheets (Wells Fargo, JPMorgan)
• Trading at P/B ratios under 0.5 (below liquidation value)
• 50-70% margin of safety if they survived

• Value investors (including Buffett) bought aggressively
• Required conviction and courage
• Many held cash waiting for this opportunity

• Bank of America: $3 →$18 (6× return)
• Citigroup: $1 →$50+ (50×+ return)
• Wells Fargo: $8 →$55 (7× return)
• JPMorgan: $15 →$70 (5× return)

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Case Study #3: Tobacco Stocks (2010s)

• 2010-2020: Tobacco stocks unloved due to health concerns
• Altria, Philip Morris: Consistent earnings, low P/E (8-12)
• High dividend yields (6-8%)
• Market assumed industry would die

• Declining volume but pricing power intact
• Shifting to reduced-risk products (vapes, heat-not-burn)
• Massive free cash flow generation
• Trading at 30-40% discount to fair value

• Value investors accumulated positions
• Collected 6-8% dividends while waiting
• Reinvested dividends for compound growth

• Altria: Total return ~200% over decade (with dividends reinvested)
• Philip Morris International: ~150% total return
• Massive dividend income along the way

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Common Beginner Questions

1. Stock reaches intrinsic value (or above) → Consider selling
2. Fundamentals deteriorate permanently → Sell immediately
3. You find a better opportunity → Swap into better value
4. Thesis proves wrong → Exit and admit mistake

• Have the fundamentals changed?
• Is my thesis still intact?
• Is the margin of safety now even larger?

• You’ll likely underperform growth stocks during euphoric rallies
• Stay disciplined (don’t chase overvalued growth)
• Use the time to accumulate positions while others chase momentum
• When the cycle turns, you’ll be glad you did

• Many value stocks pay dividends (financials, consumer staples, industrials)
• Dividends provide income while waiting for revaluation
• Focus on “value + yield” stocks (P/E <15, yield >3%)

• Financials (banks, insurance) - Often trade at low P/E and P/B
• Energy - Cyclical, frequently undervalued during downturns
• Industrials - Boring but steady, often overlooked
• Consumer Staples - Defensive, sometimes undervalued during growth manias
• Utilities - Slow growth, high dividends, often cheap

• Healthcare - Can find value in pharma during patent cliff fears
• Materials - Cyclical, value opportunities during downturns
• Real Estate - REITs sometimes trade below NAV

• Technology - Typically growth-oriented (but exceptions exist)
• Communication Services - Mixed (some value, some growth)

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Success Checklist

• Understood the core principles of value investing (buy $100 bills for$60)
• Learned key valuation metrics (P/E, P/B, P/S, PEG, dividend yield)
• Used Sage to screen for value stock candidates
• Performed deep-dive analysis on 3-5 value stocks using Money
• Calculated intrinsic value using at least one method
• Identified the “why it’s cheap” reason for your stocks
• Checked for value trap warning signs
• Calculated margin of safety (should be 25%+)
• Identified potential catalysts for revaluation
• Built or planned your first value portfolio (10-15 stocks or ETF-based)
• Set up a value journal to track investment theses
• Committed to 2-5 year holding period (patience is key!)

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What’s Next?

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Related Workflows:

• Growth Stock Selection - Learn the opposite: buying growth at any price
• Dividend Investing Strategy - Many value stocks pay dividends
• Understanding Stock Fundamentals - Deepen your analysis skills
• Monthly Portfolio Review - Track your value holdings
• Rebalancing Your Portfolio - Sell when stocks reach fair value

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Continue Learning:

• Read “The Intelligent Investor” by Benjamin Graham (the value investing bible)
• Study Warren Buffett’s annual letters (free on Berkshire Hathaway website)
• Follow value investors on Twitter/X (find contrarian thinkers)
• Join value investing communities (r/ValueInvesting on Reddit)

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Practice:

• Run weekly value screens using Sage
• Analyze 1-2 value stocks per week
• Paper trade value positions before using real money
• Track your picks (even if you don’t buy) to learn pattern recognition