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22 Questions With Value Investor Jon Forbes

- By PJ Pahygiannis

1. How and why did you get started investing? What is your background?

I got started about a year ago this past fall because my goal was to make some money while learning about different aspects of the markets.

2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas from?

My current strategy is to buy undervalued companies. The majority of my portfolio is in an offshore drilling company. I read Benjamin Graham's book, "The Intelligent Investor," took notes and developed an Excel sheet to assist in determining if a certain number of parameters (listed in Graham's book) are passed as well as calculating the Graham number to get an idea on what the fair value should be around if all criteria are passed.

3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

Warren Buffett (Trades, Portfolio) drew me to that strategy as well as a slowly developed disgust for technical analysts. Its also very important to know everything about the company that you are buying. If I only had three valuation metrics, they would not tell me enough about the company to buy shares.

4. What books or other investors changed the way you think, inspired you or mentored you? What is the most important lesson learned from them? What investors do you follow today?

My whole analysis runs off of things taught from Benjamin Graham's well-known book, "The Intelligent Investor." Another book I found interesting is Nicolas Darvas' book, "How I Made $2,000,000 in the Stock Market."

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

Long enough to reach my predicted price of how much I think the company is worth. I trust my research enough to not sell, even when my position is down significantly.

6. How has your investing approach changed over the years?

Initially, I traded but got tired and started to use what I learned in Benjamin Graham's book.

7. Name some of the things that you do or believe that other investors do not.

I believe that a lot of investors these days do not hold onto stock for longer than 12 months, and most that do probably do not get into fundamental analysis. It is an incredible world that many people just are not a part of.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?

Just listening to the conference call can tell you many things about a companies current position and how well the management is running things.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?

Finviz is great, it screens for companies with a price-book ratio under one with positive earnings and looks for steady growth as well as a dividend. Everything else can be calculated using information on the annual or quarterly report.

10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.

A lot of factors come into play, but the first thing I look at is the price-book value as well as the performance. Then the Graham number is calculated and the companies growth is looked at. If everything else passes, the last things that are looked at is if the company has an issue with increasing share count or if it acquires too many companies at once (no more than one or two a year).

11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard cut rules?

Benjamin Graham's enterprising and defensive stock criteria are looked at primarily while analyzing a company.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

I look at the past performance as well as current numbers through the company's reports.

13. How do you go about valuing a stock and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some of examples.

There are a number of criteria that I like to use when evaluating a company, most of which are listed above.

14. What kind of bargains are you finding in this market? Do you have a favorite sector or avoid certain areas, and why?

I try to avoid companies in the financial industry because I always had issues with them. Everything else is not really an issue.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

I do not really have an opinion on the market as a whole. It has been performing well recently, so bargain stocks are more difficult to find but they are always out there.

16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

Still finishing up Graham's book and writing notes on everything that is important.

17. Any advice to a new value investor? What should they know and what habits should they develop before they start?

Keep at it and be patient, trust your analysis so much that the immediate price is not something that will worry you.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?

Finviz and company fillings. I have never really piggybacked on other investors.

19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?

The biggest mistake I made value investing was not starting early enough. I lost quite a bit of money on SunEdison (SUNEQ), then began value investing shortly thereafter.

20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

I tend to rely on my analysis enough so that the current price does not really bother me.

21. If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investing-wise compared to the indexes?

My portfolio owns a good amount of Atwood Oceanics (ATW) shares. I bought in early 2016 and plan on holding it until it comes near the $30 range. I believe it is quite undervalued. The rest of my portfolio is just cash and SPY shares.

22. If most fundamental investors study the greats (e.g. Buffet, Klarman, etc), then surely value investing is no longer a 'contrarian' investment strategy?

With regard to the rest of the market, I believe it is.

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This article first appeared on GuruFocus.