Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Value Funds: Longer Time Horizons than Congress or the Somali Pirates

We saw in Chapter 4 that Congress and the Somali pirates both have very short time frames for their business cycle planning. True value investing has a long time horizon, or perhaps more accurately, is time indifferent. Value investing probably has the purest approach to time of all the investment styles. Ben Graham and David Dodd, the fathers of value investing, said investors should “look for values with a significant margin of safety relative to prices.” Ben Graham also famously said in his book Securities Analysis, “In the short term the stock market is a voting machine, but in the long term it is a weighing machine.” ¹ I think the best way to explain what he meant is that in the short term, a stock might be very popular or unpopular and not objectively valued, but in the long term, at its moment of truth, it would be mechanically, and therefore accurately, weighed or valued. That is to say, it would have an objectively undeniable value. A good example of an undeniable objective value is an acquisition price. He was relatively indifferent to the time frame of realizing value as long as he knew he had purchased a company for half or less than its fair value as an ongoing business. He did not know when his purchase would pay off, but he knew it eventually would. He focused on metrics for buying companies for their overall value as private entities and purchasing their stocks only if they were trading at significant ...