 Good day, fellow investors. You probably already know Peter Barklin, head manager of the niche masters funds. We already made a few videos and you can find them all in the description below. So, on the crucial topics when it comes to investing. And one topic that confuses a lot of viewers is, okay, value investing, what it is. And the key is, okay, I see value. I recently did the video on Tata Motors that everybody was pointing out, this is value, this is value, the stock is down 60% even if it boosted the peer ratio of just nine, a few months ago. So, how to avoid investing in value traps and what is actually value when it comes to investing? Is it a low PE, low price to book or how to make this value investing much easier than all the difficulties that it showed around and people I'm sure don't really know what is value investing. So please, if you could share us your view on value investing and how can we make it easier for our viewers to understand what value investing really is and how to avoid, of course, the loser. How not to lose money. What's the margin of safety? Okay, that's a broad question. But so first of all, value investing defined, the central parts of that is the recognition that there is a difference between the price of something and the value of something. And what value investors do or at least what they say they do is to pay a price for something that is worse more than that price. And therefore they make a margin, the bigger that margin is, they call it a margin of safety sometimes. The more likely they are to be able to sell this investment in the future, they believe at a price that gets closer to that value as they estimate it is. So the price is very easy, because the price is just a share price. The value, of course, is completely elusive and two people will not agree on it, except when they trade a stock at that point that they by definition agree. So you have to make your own judgment of what you think something is worth. And people use all sorts of different ways to do that. But the technical, mathematical way is easy to start with bonds and to just say a bond that is $100 bond, which pays a 10% coupon, means that this bond pays a 10% interest per year. And you can calculate then what the value of that bond is, because it's probably more than 100, because it pays an interest that is higher than what you can get from other investments. So if you put in your alternative interest rate of say 3%, and here this bond give you 10%, then instead of buying it for 100, you buy it for maybe 130 or whatever the price is as it comes out. So with a bond, it's very easy to calculate the value, because there's only one variable, and that is that interest rate, the alternative interest rate. With a stock, there's a share company. There's a whole hundreds, if not thousands of variables, and the interest rate is just one. The most important one is how much cash flow do you expect this company to generate in the years ahead? And now it's back to you, because now it's your footwork. You have to go and look at the company and say, what do they do? What market are they in? Is the market growing? Do they need to grow faster than the market? Are there any technological hindrances or ceilings for where they can go? Is it depending on a patent running out at some point in the future, where the prices will drop? The list is simply too long to go on about it, except you have to have a view of that. Then you input that either into just your mind, or you can use a spreadsheet, and you say, I think this company looks surprisingly cheap relative to what it is producing and what it is likely to produce, so I'll buy it. That's the basics of the value investing. But then, when you look at, you read the Wall Street Journal, for example, and they'll say, this year, value investors did better or worse than growth investors. But the way they calculate that is by defining value investment as low prices. So for example, the price to earnings ratio of a company is really a pricing measure, but it is called a valuation measure. This company is valued at, no, it's not, it's priced at this particular price. So when a statistical agency says, we see how big a return investors in low priced stocks got, and then call it value investing, they actually make a leap of faith because it is not, certainly not in my opinion, value investing, because value investing is also, like in our definition, is companies that are high quality and will be more expensive than the average company, but which we still believe we can buy cheaper. Not cheap, cheap, but giving a straight example. If you buy a company for a price earning of seven, and it turns out to be only worth five, then seven is expensive. If you buy a company to a price earnings of 20, but the value turns out to be 25, then you have made yourself a value investment, in my opinion. Except in March of 2009 or 2002, when those companies also traded the low. Yes, but they didn't all go to seven. If they range from 10 to 20, they may end up ranging from five to 15, so they all move up and down. And then sometimes there are unique opportunities in individual companies, but certainly you would have been really well off if you had invested, if you had not been invested at all going into 2007, and then you have put your entire fortune into stocks in March 2009. But that's very easy to say, and in practice we can't do that. So when it comes to value investing, so we have defined the cheapest stock that are priced, the cheapest in the market, not value, the cheapest. So how do you differentiate, so we already differentiate that, so it's not the cheapest, it's the quality, but how do you time that? So I have a great company, it has a price earnings ratio, earnings yield, it's a quality company. How do you time your investments? When do you say, okay, now I'm going in, does it matter, I don't know, that we'll have a recession, we are at the late part of the economic cycle, how do you deal with that and value? Okay, so all the macroeconomic factors, I more or less ignore because I have to assume that investors in the fund have made a decision that when they put money into this fund, they expect it to be invested in equities and stocks. I should not make a decision on their behalf whether they want to be invested or not. By putting money into the fund, they have said, we want to invest in stocks. It's up to them to say, I think I'd now rather prefer bonds or gold or something else or not at all or cash. But aren't you afraid that investors will make the wrong decision or that's up to them? That has to be up to them. The broad decisions of do I want to be in stocks, bonds, precious metals and commodities, energy, real estate, et cetera, et cetera, that has to be up to them. There are other private banks and investment advisors that will help people make those decisions. We specialize in stocks. But for example, if you would think about the macro, then probably in 2012, 2014, when you started the fund, there was the Euro crisis, Greece. People forget about it that there was a lot of problems, but you're still invested and that's what has brought to holding those companies that you have now that have multiplied incredibly. So we have to simply, okay, that's the stock market. As always, invest the money that you don't need, accept the volatility, take advantage of the volatility. You reinvest those dividends and the companies can buy back shares at a lower price. And that's simply the stock market. Should I conclude like that? And Sven, in practice, what also happens is that when we have this little list of stocks or the portfolio that are in the fund, we see some incredible price rises from time to time, which almost always leads us to sell some of those positions. If only because we have to, because they can only get to a certain size. That means there's always money to invest in the fund. And then we constantly scan the others, not only the positions we have, but also the positions we would like. And it becomes a relative. I cannot say for sure when I buy something that I buy it really, really cheap, but I can say that I buy it cheapest among equals, cheapest among the other opportunities I have at that moment. So you practically constantly balance those positions in the portfolio, which probably adds the return over the long term and lowers the risk because you always have cash to buy more if the opportunity presents itself. All right. Thank you for explaining how different value investor, value investing is and what are the dangers of actually being a value investor and how to balance around that value in your portfolio, which is I think very, very valuable. And how do you do it in your niche focused value investing fund? Thank you, Peter, for this series of videos. I'll make them all in a playlist so you can check all the videos about what we talked about return on invested capital, how to find great stocks with Peter Barkling. And if people want to know more, there is always a link in the description below where they can contact you and see more about the fund or whatever you do. Thank you for this interesting experience. Thank you and I'll see you in the next video.