I recently got two comments from two different guys on two different posts (at least, they had different nicknames, so, I assume they're not the same person) about book value or value investing.
I've never looked that much on book value. The only times I've looked at it was for some specific stocks that I owned in the past: Vecima Network, Rifco and Home Capital Group.
I'd look at it too if I was to invest in Berkshire.
The 3 stocks above are interesting. They're probably not great stocks anymore, but they're at least OK or good for me. So, if a OK/good stock is selling under book value (these three are not, but it's close), it would be a criteria in favor of a buying. But not the main criteria.
Actually, book value is one of the last thing I look at before investing. And you may be surprised and even disappointed about it, but I look at growth in the middle of the process, not at the start. You may even think that I'm fucking crazy and I don't understand how the market works. But I simply don't see how I could invest in a business that's growing a lot but that doesn't have a good balance sheet. In other words, I'd invest in Bed bath and beyond (BBBY) long before investing in Netflix (NFLX).
Here's a short list of the things I look before investing. I look at some other numbers too, but it's just to show an order in my criterias.
2- PE ratio and forward PE ratio;
5- Buyback or dilution;
7- Book Value;
8- Dividend/Payout ratio (well, I look at this number very soon in the process, but it's only to see if the payout is too high).
Usually, I believe that a stock selling under book value is a bad or average stock. I've never been very interested in Bank of America or AIG. You can get both at 65-70% of their book value. They did well in the last 5 years, but only because they went much too low (an incredible negative sentiment was towards them). You can even get Sears Holding at a very low multiple. The book value of SHLD is negative but if you believe that real estate assets are undervalued, it would be a pure value play.
It's not my kind of investment at all. I'm not comfortable with stocks that face a great great drop in earnings. At least, BAC and AIG don't lose money.
In fact, I'm not 100% comfortable with almost every stock on the market. With my portfolio, I simply try to reduce my discomfort.
For me, the best business is the business with earnings equivalent to the value of the business. Not the business that I could buy at 50% of the value of it's assets. I don't understand why I should value assets if a business doesn't make money.