Is Value Investing possible in Mutual Funds?

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In the last article, we read about Mr Chandrakant Samapt, “Tribute to The Father of Value Investing in India.” After reading this a question must have arisen in one’s mind is it possible to implement a value investing in mutual funds? If yes then how?

We will check the possibilities of applicability of Value Investing in Mutual Funds. For that, we need to know what is Value Investing.

What is value investing?

It is nothing but the investment style in which the intrinsic value of stocks is checked and those trading below intrinsic value are chosen for investing.

For an individual stock, it is possible to check intrinsic value, but in Mutual Fund where multiple stocks are in the portfolio, how can we find the Intrinsic Value?

Everybody knows that “Buy at Low and Sell at High” is the Golden Rule in investment, but nobody knows how to apply it while investing.

We are so intelligent that we learn lessons from various sources like Bollywood movies, Navratri, Dashara (festivals), and many folk stories, just like Lord Dattatray gained knowledge from 24 different sources like dogs, flies, and spiders. On another side, we are so dumb that we are not implementing that knowledge in our day-to-day investing decisions.

When I was describing the theoretical background of my strategy called BLTP, which is based on The Margin of Safety, A leading CFP Trainer (instructor) confessed that although we teach about Intrinsic Value and The Margin Of Safety, we also don’t know how to apply it practically.

Knowing something is not a sign of knowledge, it is how you implement it.

History shows that valuation is the key determinant of investment returns in the long run. Buying stocks when valuations are low provides greater rates of return with less risk. Buying stocks when valuations are high generates lower or negative rates of return with greater risk.

If I can find an abundance of Fund Units that meet my Margin Of Safety requirements then I might raise my equity units (Buy units at Low).

“Investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”

Benjamin Graham

If valuations are high and bargains are scarce I may lower my equity units (Sale units at High- Book the Profit).

Value Investing can be explained in a single sentence like this

Maintaining Balance between Expectations (Greed / Fear) and Reality (Opportunity)

But the reality is that.

Just like In Life:

Health has no value until illness occurs.

In an investment:

Risk management has no value until the market is disrupted.

Will learn to apply it in Mutual Fund in the coming articles.