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Orbis Investments: Time for cheap quality, not cheap junk

Investment News for Financial Advisers & Paraplanners

14 May 2019

Orbis Investments: Time for cheap quality, not cheap junk

Buying cheap stocks and selling them for a profit sounds like a reasonable way to make money. But cheap stocks are often cheap for a reason—maybe they grow less quickly, or carry more risk than other businesses.

That’s why we don’t simply buy ‘cheap’ stocks

Since ‘value’ stocks are classically defined as those that trade at less than their book value, the investment style known as value investing is often understood to equate ‘value’ with ‘cheap’. And with the same framework, ‘growth’ stocks are sometimes defined by their expensive prices.

That’s not what we do.

We conduct in-depth company research aiming to buy businesses at a discount to ourcalculation of their worth, what we call their ‘intrinsic’ value. For example, if we conclude that a company’s growth potential is underappreciated, we’d actually be happy to pay a slightly above-average price for a business we think is much better than average.

Conversely, we can sometimes find stocks that are cheaper than the average stock and have better growth, profitability, and balance sheets than the average company.

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