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Value Investors Speak Out

Last week concluded a nationwide tour for the disciples of famous value investors, such as Warren Buffett and Ed Lampert, that has become an annual tradition in finance circles.

It included a stop in Omaha, Neb., for the much-publicized Berkshire Hathaway (BRKA) annual meeting. Then it was on to Los Angeles for the Value Investing Congress, followed by the Wesco Financial (WSC) meeting in Pasadena, Calif., where Buffett's right-hand man, Charles Munger, took the stage.

While these events give luminaries such as Buffett and Munger a chance to speak directly with their shareholders, they also provide a forum for like-minded gurus to exchange ideas on the many strands of investment strategies that originated with the kind of securities analysis pioneered by the late Benjamin Graham and David Dodd. For instance, the Value Investing Congress last November gained notoriety when Pershing Square Capital manager Bill Ackman unveiled his controversial plan to restructure McDonald's (MCD) in order to unlock hidden real estate wealth.

Value investing is based on the idea that the market's share prices of a given company often fail to reflect the underlying value of its business, and stocks can therefore be bought at depressed prices. Using discounted cash-flow analyses and other variables to find out how much a business is really worth, those prudent investors who stumble upon such opportunities should, in theory, enjoy outsized returns when the hidden value in a business is finally realized by others.

Along with careful analysis, such investing also demands a rare brand of courage in order to stand apart from the crowd; this adds a certain level of irony to the recent gatherings where value-oriented investors appear to be finding strength in numbers.

"Not long ago, this might have been a conference for growth and momentum investing," Dan Loeb, manager of Third Point, said at the Value Investing Congress.

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