Modern Value Investing Executive Education Program in London
The Heilbrunn Center will next host the London Modern Value Program May 27-29, 2026. Register now!
What is Advanced about Advanced Value Investing?
You might have heard that value, quant value to be specific, has not performed well over the last decade (though recently it is staging a remarkable return!). The returns associated with investing $1 in four quant strategies, big value, big growth, small value, and small growth have been very different. Over the last decade, big growth, a diversified portfolio of large market capitalization low book-to-market stocks, has outperformed big value, a diversified portfolio of large market capitalization high book-to-market stocks. Does this mean value investing is dead? Absolutely not. Journalists and observers sometimes confuse quant value, roughly constructing diversified portfolios of stocks that are cheap according to some quant metric such as book-to-market, with value investing, which is about business valuation and individual stock selection. This course is about value investing: The discipline associated with constructing portfolios of individual stocks. But it is a bit more than Value investing, it is modern value investing.
Value Investing is the process by which, first, we estimate, within our circle of competence, the fundamental value of the business operations of the firm in the context of the competitive position the company has in the industry and markets in which it operates and, second, assess the wisdom of buying an ownership stake in the firm using the concept of margin of safety as the main risk management tool.
Notice that I wrote “process”. Value investing is indeed structured and systematic, and it needs to be because it is granular, focused on the specifics of the firm under consideration. Thus, it is easy to get lost in the details of the firm. The process helps you assess the importance of each bit of information and integrate them coherently in the analysis that combines tools from accounting, valuation, and the economics of strategic behavior.
Where do we depart in this course from the traditional value investing? Four things.
First, many observers, and not a few investors themselves, understand value in its opposition to growth, and that you can only be a value investor or a growth investor. This is nonsense. Here is Warren Buffett himself on the distinction between value and growth: “We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.” We will tackle the issue of growth head on. First, Modern Value recognizes that growth is an issue if and only if the business operations of the firm are protected by barriers to entry. Second, it focuses on the ability of the firm to redeploy capital at higher return on invested capital (ROIC) and for the foreseeable future, that is, that the total addressable market (TAM) is large enough to absorb sustained capital deployment for the next four to five years. Thus, the focus is on ROIC, its connection with the rate of growth of earnings, and, most importantly, an assessment of how much we should pay for growth.
This brings us to the second theme of Modern Value: The careful treatment of intangibles. Think about ROIC. We are interested in the marginal return on invested capital: how much more NOPAT can the firm obtain per unit of additional invested capital. But most of the capital deployment in many of the modern corporations is not treated as an investment, but rather it is treated as an expense. Value investors have always been clear-eyed about the distinction between accounting, the way the financials are presented, and the economics of the business operations of the firm (think of the perennial example of Coca-Cola’s most important asset, the brand, not being reflected in the balance sheet), but this distinction is today more important than ever. We need to think about the “IC” in ROIC carefully and systematically. Intangibles are the modern economy, and it is impossible to be a good investor without having a deep understanding of how companies grow those intangible assets. That is why we devote considerable time to companies such as ADBE or PYPL (and CRM if time permits!). We also explore the limitations inherent in the valuation of the intangibles, and we assess how to bypass those limitations.
The third theme of Modern Value is that of specialization, that the good investor is a specialized investor. Specialization solves the ultimate problem in investing: adverse selection, the fact that one never knows when buying or selling whether the counterparty who is selling or buying is better informed about the prospects of the business operations of the firm being traded. One can be a specialist in many things, in a particular asset class, in an industry, or in a geographic market. Modern Value allows for the quick development of specialization by offering an integrated and coherent framework.
Modern Value, intangibles and technology
The concepts of Modern Value are of course relevant across sectors, but they are particularly so in the case of technology and the new economy. A fourth aspect of Modern Value is that it does not shy away from technology and its dynamic aspects, from competitive threats to the business transformations that accompany technology revolutions. This requires a subtle understanding of the interplay between accounting, economics, and valuation.