Value investor Ethan Berg describes his bargain-hunting sensibility as follows: “I had observed in major items I purchased in my consumer life that with a little digging there regularly were anomalies on how things were priced, or more accurately, mis priced. My Red Sox season tickets were $20 a seat but with the same view as seats two rows away at $65 a seat and across an eight-foot aisle that were $45 a seat. I purchased my car used, at one-fourth of its original cost, even though it still had what I estimated to be approximately 85 percent of its useful life remaining.”
On a similar note, Ethan Berg also emphasises that bargain deals are not always poor quality. There are times when by slightly increasing the quality, the price is heavily increased for products. This is where bargain bin investing comes into play. The stocks that are available at low prices need not be of poor value. Their value may be slightly lower than other comparable stocks, but they can still give good returns, especially considering the low cost of investment.
Bargain hunting is something most us embrace in principle, but true bargain hunters are few and far between. On the line that represents the trade-off between quality and price, most investors find themselves creeping toward quality, accepting a higher price in return for greater certainty and peace of mind. There is nothing wrong with such a transformation. After all, Warren Buffett has famously undergone the same shift in his investment approach. That said, Buffett has hinted that the shift has been at least partly motivated by the mushrooming of his investable assets.
In his personal portfolio, Buffett has ventured into Graham style bargains long after Berkshire started focusing on high-quality franchise businesses. Several years ago, Buffett was reported to have invested some of his personal portfolio into South Korean net nets—companies trading for less than their current assets minus total liabilities. The investment approach of Zeke Ashton, managing partner of Centaur Capital Partners, has evolved similarly. “We very much prefer our ideas to take the form of high quality businesses with excellent management that can grow value over the longer term, but we will buy mediocre assets if the price is right.”
Therefore, the bargain-bin of investing technique is different from the usual techniques. It may sound like scraping the dirt, but it is essentially not. The strategy has been efficiently used by many successful investors and has a strong profit potential, with low risk profile.