Charles Brandes Gives Tips for Savvy Value Investing

Charles Brandes, founder and Chairman of Brandes Investment Partners, is a disciple of the Benjamin Graham school of value investing. He has made much of his wealth managing funds that invest in cheap, beaten-down stocks that no one else wants. In a recent interview with CNBC, Brandes offered some tips for making money in value stocks:

Search for value.

Brandes says a company should have sustained no losses over the past five years and total debt should be less than 10 percent of total tangible equity. Further, share price should be less than the book value per share, and any yield should be at least twice that of long-term AAA bonds.


Stay the course.

There can be long periods where value stocks don’t fare well, but Brandes has trained himself not to sell during those periods. “Value investing has a lot to do with being antihuman,” he said. “You have to think very differently, independently and counter to everyone else.”


Consider emerging markets.

Emerging markets account for 42 percent of the global GDP and, according to Brandes, hold vast potential for investors although many are (understandably) nervous due to economic uncertainty. However, he says that despite big risks, it may be time to look for opportunities, particularly in developing nations. One of Brandes’ early international stock buys was Teléfonos de México (now Telemex) in 1983, and the investment has earned huge profits. He thinks that Brazil may present some attractive investment opportunities (i.e. cheap stocks) given its current economic and political woes.


Buy the “bad” stocks.

Brandes says that the stocks to buy are the ones that are so out of favor no one wants to touch them. For example, he’s currently buying into Russian oil and gas stocks, which might seem crazy to the average investor. But for Brandes it makes a lot of sense. He started buying right after the Ukraine crisis (when everyone else ran in the other direction) and many of his positions have since doubled.

While the things to look for vary by sector, Brandes says price-to-earnings ratios and price-to-book ratios are a good place to start. For financial businesses however (which can be highly leveraged), he looks at whether the company’s debt could withstand defaults during a recessionary period. Tech companies, on the other hand, should have plenty of free cash flow to fund innovation.