What is behind this essentially simple philosophy is the central tenet of value investing – that the biggest determinant of the future return from a share is the price that you pay for it.
“Most fund managers talk about the quality businesses they invest in, the great management that they have, the wonderful barriers to entry and so on,” says Murphy. “But the problem with those kinds of businesses is that there are only a few of them in the world, and everyone is looking for them. That drives the prices of those businesses up to very high levels, and there’s a lot of research that shows that if you buy expensive companies you get very bad outcomes.”
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