Introduction

Value investing is one of the most respected investment philosophies in the world, popularized by legends like Benjamin Graham and Warren Buffett. But how does it apply in Nepal’s stock market? In this blog post, we dive deep into the principles of value investing, exploring its core concepts, strategies, and real-world applications in Nepal’s financial landscape.

We had the privilege of discussing this topic with Mr. Vardan Giri, one of Nepal’s finest value investors and the founder of Ansu Invest. A CFA charterholder, Mr. Giri shared invaluable insights on how investors can identify undervalued stocks, manage risks, and build long-term wealth.

What is Value Investing?

Value investing is the strategy of buying stocks that are trading below their intrinsic value. The goal is to invest in fundamentally strong companies when they are undervalued by the market and hold them until their true worth is realized.

Key Principles of Value Investing:

1. Margin of Safety – Buying stocks at a significant discount to their intrinsic value to minimize risk.

2. Fundamental Analysis – Evaluating financial statements, business models, and industry trends.

3. Long-Term Perspective – Holding investments for years, not days or months.

4. Patience & Conviction – Avoiding market noise and sticking to well-researched decisions.

How to Identify Undervalued Stocks in Nepal?

1. Focus on Intrinsic Value, Not Just Price

Many investors make the mistake of judging a stock solely by its price. However, a stock priced at Rs. 5,000 can be cheap if its intrinsic value is Rs. 10,000, while a stock at Rs. 50 can be expensive if its true worth is only Rs. 20.

Example:

• Unilever Nepal was once trading at Rs. 1,800, but its intrinsic value was calculated at Rs. 3,000. Investors who bought at the lower price saw massive gains when the stock eventually surged.

2. Use Discounted Cash Flow (DCF) Analysis

One of the most reliable ways to determine intrinsic value is through Discounted Cash Flow (DCF) analysis, which estimates future cash flows and discounts them to present value.

Steps in DCF Analysis:

• Project future revenues and profit margins.

• Estimate free cash flow.

• Apply a discount rate (based on risk).

• Calculate the present value of future cash flows.

3. Look for Strong Fundamentals

• Balance Sheet Strength – Low debt, high cash reserves.

• Consistent Earnings – Stable or growing profits.

• Competitive Advantage – Strong brand, pricing power, or market dominance.

Common Mistakes in Value Investing

1. Ignoring Business Quality

A stock may appear cheap, but if the business model is weak (e.g., declining revenues, high competition), it’s not a true value investment.

Example:

• Cement companies in Nepal face overcapacity issues, making them commodity-type businesses with low pricing power.

• Bottlers (BNT, Bottlers Nepal), despite being profitable, face declining demand due to health-conscious consumers shifting away from sugary drinks.

2. Overlooking Industry Trends

Even great companies can become bad investments if their industry is in decline.

Example:

• Nepal Reinsurance was once a monopoly but lost market share after Himalayan Reinsurance entered the market.

3. Emotional Investing

Many investors buy high out of greed and sell low out of fear. Value investing requires discipline and patience.

Sectors to Watch in Nepal

1. Technology (IT) Sector

• Nepal’s IT companies are growing rapidly but are not yet listed. If policies encourage IPOs, this sector could be a goldmine.

• Potential for data centers, software exports, and digital services.

2. Banking & Insurance

• Strong fundamentals but sensitive to interest rate changes.

• NIC Asia Bank, Nabil Bank, and Nepal Life Insurance are well-managed players.

3. Hydropower

• High risk due to long construction periods and regulatory hurdles.

• But long-term potential if projects complete on time.

Risk Management in Value Investing

1. Avoid Overleveraging

• Borrowing money to invest (margin trading) can magnify both gains and losses.

• Warren Buffett’s Rule: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.”

2. Diversify Wisely

• Don’t put all your money in one stock (even if it’s undervalued).

• Example: Mr. Giri once invested 70% of his portfolio in Unilever Nepal, but this was based on deep conviction.

3. Stay Updated

• Markets change, and so do companies. Re-evaluate investments quarterly.

Books Every Value Investor Should Read

1. “The Intelligent Investor” – Benjamin Graham (The Bible of Value Investing)

2. “Security Analysis” – Benjamin Graham & David Dodd (Advanced Fundamental Analysis)

3. “Margin of Safety” – Seth Klarman (Risk Management in Investing)

4. “Common Stocks and Uncommon Profits” – Philip Fisher (Growth Investing Principles)

5. “The Most Important Thing” – Howard Marks (Market Cycles & Psychology)

Final Thoughts: How to Succeed in Nepal’s Stock Market?

1. Think Like a Business Owner – Don’t just trade; invest in companies you understand.

2. Do Your Homework – Read annual reports, analyse financials, and study industries.

3. Be Patient – The biggest gains come from holding great stocks for years.

4. Ignore Market Noise – Avoid short-term speculation and focus on long-term value.

Conclusion

Value investing isn’t about quick profits—it’s about finding diamonds in the rough and holding them until the market recognizes their true worth. By applying these principles, Nepali investors can build sustainable wealth in the stock market.

Are you a value investor? Share your thoughts in the comments!