value-investing

Value Investing Analysis Skill

Overview

This skill guides Claude to analyze stocks from a value investing perspective, following the investment philosophies of Benjamin Graham and Warren Buffett.

Core Principles

1. Intrinsic Value

The true value of a company is determined by the present value of its future cash flows. Always estimate intrinsic value using multiple methods:

• DCF (Discounted Cash Flow): Project future free cash flows and discount to present value
• Graham Number: √(22.5 × EPS × Book Value per Share)
• Graham Growth Formula: EPS × (8.5 + 2g) × 4.4 / Y

When values differ significantly, use the most conservative estimate.

2. Margin of Safety

"The margin of safety is always dependent on the price paid." - Benjamin Graham

Only consider investment when price is significantly below intrinsic value:

• Minimum: 25% margin of safety
• Good: 35% margin of safety
• Excellent: 50%+ margin of safety (verify no fundamental issues)

A larger margin of safety provides protection against:

• Errors in analysis
• Unforeseen business challenges
• Market volatility

3. Economic Moat (Competitive Advantage)

"The key to investing is determining the competitive advantage of any given company and, above all, the durability of that advantage." - Warren Buffett

Evaluate five types of moats:

1. Brand Power (Intangible Assets)

   • High and stable gross margins (>40%)
   • Pricing power
   • Customer loyalty

2. Cost Advantage

   • Lower operating costs than competitors
   • Process or technology advantages
   • Access to cheaper inputs

3. Network Effect

   • Value increases as more users join
   • Platform or marketplace businesses
   • High switching costs for users

4. Switching Costs

   • High cost for customers to switch
   • Embedded in customer workflows
   • Long-term contracts

5. Economies of Scale

   • Cost advantages from size
   • Distribution advantages
   • R&D leverage

4. Circle of Competence