Storytelling.

Markets are inefficient, you don't need Graham to tell you that as you can see it all around you.

There are stocks out there trading at 100x multiples to forward earnings right alongside others trading at market caps that barely cover their quarterly EBITDA figures, no real rhyme or reason across a broader landscape, but if we zoom into each company individually their history and financials come to life.

The fact that markets are inefficient is exactly what blesses us value investors with opportunities to make outsized returns by picking out stocks that have been beaten up beyond their fair valuations.

But one thing about markets is that they are never wrong.

While stocks that are down 50 ,60 or even 70% from their IPOs seem cheap just off where they are now compared to where they have been, this doesn't mean that they are actually cheap.

This is where the true job of a value investor comes into play, being a detective.

Most stocks that we deal with have been murdered and it is up to use to find out why this is the case and whether or not it is possible for the company to survive.

While every investor can take the time to read through financial information and corporate reports (most people still don't), there is one completely intangible aspect to value investing and just stock picking in general that goes unnoticed.

Storytelling.

An investor can only do so much with raw numbers, sure there are some notable investors that have stuck completely to their financial models and kept their investing habits strict and clean, but more often than not value stocks come in the form of heaping piles of poop.

Simply looking at my past five value stock picks, all netting over 200% returns over the last five years, you won't find anything appealing, at least not at first sight...

Value stocks are not diamonds in the rough, more often than not they are just barely decent companies that have been jumbled up with other not so flavorful names. This is precisely why I dub value investing as a form of contrarian investing, you are actively betting against what the market is telling you the valuation of a certain company is.

A value investor must create story, a plotline, for the company they look to invest in. Why is this trading so cheap? What actions have led to this point? Are there market trends or news that have created this disconnect in valuation? Through the process of storytelling you bring the financial statements of 10-Ks to life and are able to see beyond just the numbers in order to capture a bigger picture view of your investment.

Like an iceberg, the majority of investment due diligence is hidden below the dark waters of financials and investment screeners. Often times the numbers do not tell the full story, and like a detective, one must dig deeper into the root cause of the issues that have led to a company getting so disjointed from its fair valuation that it now becomes a tempting value proposition.

As we get into this edition of Andy's Angle value investing education, we will go in-depth into what it takes to actually be a prolific stock picker going against market trends and hunting for multi-bagger opportunities rather than just blindly investing in companies that look cheap but are in reality valued cheaply because they just aren't very good companies...