This article originally appeared on April 23, 2013 on Real Money. To read more content like this + see inside Jim Cramer's multi-million dollar portfolio for FREE. Click Here NOW.
NEW YORK ( RealMoney) -- Investors should pay far more attention to the teacher than to the teacher's most successful student. Billionaire investor Warren Buffett's investing philosophy has deviated from the original methods taught by Ben Graham, as his enterprise has grown to a size that makes true cigar-butt, asset-based value investing less practical. Much is made of Buffett learning more of a Phil Fischer-like approach from partner Charlie Munger, but the truth is Buffett would have had to develop along that path even if he never met Munger. He had too much money under management for a hardcore value approach to be practical.
That is a problem I do not have, thankfully. I can still focus on the approach learned in the Columbia University classroom that gave birth to what we now know as value investing. Different practitioners of the art have taken it different directions over the decades, but I still prefer the basic buying of assets and, secondarily, earnings at a very low price.
I also heed Graham's advice to benefit from price rather than try to predict market movements. Market movements are important in that they change the relationship between the business value of an enterprise and the current market quotation. It is the price of the individual securities rather than the current level of the averages that matters most.The collapse of the averages can and does create a plethora of buying opportunities. Periods like 2002 to 2003 and 2009 to 2010 are fun for long-term asset-based investors as bargains are everywhere. Stocks and bonds alike trade for far less than they are worth as an operating business and many sell for a discount to their liquidation value. Periods like the late 1990s, and to a lesser degree the current market, are not as much fun. Bargain issues are difficult to find and one may begin to question the wisdom of avoiding the high-priced, high-valued market darlings. Cash levels in portfolios rise as former cheap stocks become expensive and are sold.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV