Article by Harry Griffin for the the Times & Transcript January 31, 2018

The idea of value investing is something that has been around for some time. The strategy, famously adopted by Warren Buffett, involves buying companies at a price below their intrinsic value. A company’s stock price is very simply the last price someone traded that stock at. But that doesn’t necessarily mean that price is what that stock is fundamentally worth. The intrinsic value is what the share price should be based on company fundamentals (growth estimates, profit margins, debt levels, risk, etc…). The intrinsic value of a stock can be subjective, but an investor who can come up with an accurate estimate can theoretically achieve superior returns by using it as a gauge of when to buy and when to sell.

Warren Buffett is certainly the most famous value investor; however, given that this publication falls on the week of Super Bowl LIII it may be more appropriate to use a lesser known example: Bill Belichick. Belichick is the head coach of the New England Patriots and, like him or not, he has had an incredibly successful run. Throughout his tenure with the team he has developed a reputation for picking up players cheap, and parting ways with them if they become too expensive. NFL teams must manage their roster within a “salary cap” (a limit on how much they can pay the players in total). This limitation makes it crucial for teams to be disciplined when allocating money to different players. The same way investors should be disciplined in allocating money to different investments.

The first part of value investing is knowing when to buy. Belichick has a history of picking up players when they are at their cheapest. A great example is wide receiver Cordarrelle Patterson. Patterson was drafted in the first round of the 2013 draft by the Vikings. His first season was decent, but he fell short of what one would expect from a first round draft pick. So, in a sense the Vikings overpaid for him. His stock gradually fell as different teams struggled to find a use for Patterson over the next few years. Then Belichick picked him up in a trade for next to nothing in 2018. He gave the patriots almost 500 yards and five touchdowns while being paid a relatively low $4.25 million. Those numbers are well short of the 1000-yard seasons expected of top receivers. But that certainly represents good value considering leading receivers are being paid up to $18 million a year.

The other side to value investing is having a sell discipline and being able to let go of a stock when it becomes too expensive. Regardless of how great a company is, everything has a price. The difficulty is determining what that price is. Belichick has a knack for this as well. A great example is his 2016 trade of Jamie Collins. Collins was paid $486k that year, which was the last year of his rookie contract. The linebacker had led the team in tackles through the past two seasons and was considered their best defensive player. Despite his achievements, Belichick traded Collins to the Browns halfway through the season for a third-round draft pick. A gutsy move, but as Belichick saw it the player’s stock was trading too far above his intrinsic value to the team. At the end of that season the Browns signed a contract with Collins that had him paid a whopping $12.5 million per year. The Patriots on the other hand, were left with the additional cap space to pick up cheaper players, and as fans may remember, they still won the Super Bowl that year!

The analogy may only go so far. A coach might determine value using scouting reports, stat sheets or game film. Similarly, an investor may consider price multiples or cash yields to help determine value of a stock. The point is that Belichick decides what an individual player is worth before signing them. When the going market rate (or stock price) of that player is too high, he is willing to let them go. While it rarely is that simple, investors can use that as a lesson when buying and selling stocks. As he prepares for his ninth Super Bowl as head coach, its tough to deny that the approach has worked for Bill. 

This writing is for general information purposes only and should not be considered to be legal, accounting, tax or personalized financial advice. Any opinions expressed are those of the author and may not necessarily reflect those of Louisbourg Investments Inc.

Harrison Griffin, MSc is an Associate Portfolio Manager with Louisbourg Investments Inc. Comments or questions may be submitted to This email address is being protected from spambots. You need JavaScript enabled to view it., or he may be reached at 869-9718.