{"id":1025,"date":"2025-05-08T16:30:00","date_gmt":"2025-05-08T16:30:00","guid":{"rendered":"https:\/\/www.tejwin.com\/en\/insights\/charles-brandes-value-investing-principles-building-a-portfolio-with-a-margin-of-safety-nemo\/"},"modified":"2025-05-08T16:30:00","modified_gmt":"2025-05-08T16:30:00","slug":"charles-brandes-value-investing-principles-building-a-portfolio-with-a-margin-of-safety-nemo","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insights\/charles-brandes-value-investing-principles-building-a-portfolio-with-a-margin-of-safety-nemo\/","title":{"rendered":"Charles Brandes&#8217; Value Investing Principles : Building a Portfolio with a Margin of Safety"},"content":{"rendered":"<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"Charles Brandes' \" class=\"wp-image-34827\" height=\"3648\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/isaac-smith-AT77Q0Njnt0-unsplash.jpg\" width=\"5472\"\/><figcaption class=\"wp-element-caption\">Photo by <a href=\"https:\/\/unsplash.com\/@isaacmsmith?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\" rel=\"noopener\" target=\"_blank\">Isaac Smith<\/a> on <a href=\"https:\/\/unsplash.com\/photos\/pen-om-paper-AT77Q0Njnt0?utm_content=creditCopyText&amp;utm_medium=referral&amp;utm_source=unsplash\" rel=\"noopener\" target=\"_blank\">Unsplash<\/a><br \/><\/figcaption><\/figure>\n<h2 class=\"wp-block-heading\">Preface<\/h2>\n<p class=\"wp-block-paragraph\">In the field of investing,\u00a0<em>business cycles<\/em>\u00a0have always served as an important reference. Whether it\u2019s fluctuations in the macroeconomy or the ups and downs of corporate earnings, these cycles play a crucial role. Charles Brandes, a distinguished disciple of Benjamin Graham, founded Brandes Investment Partners in 1974 and has since grown its assets under management from $130 million to over $75 billion. The firm\u2019s Brandes Global Equity Fund achieved an impressive 20-year annualized return of 17.91%, significantly outperforming the MSCI World Index, and has received Morningstar\u2019s five-star rating and numerous international awards. Another flagship product, the AGF International Value Fund, has also demonstrated outstanding long-term performance. Brandes himself has been repeatedly ranked among the world\u2019s top fund managers.<\/p>\n<p class=\"wp-block-paragraph\">A steadfast adherent to the principles of value investing, Brandes rejects the use of forward-looking forecasts as the basis for stock selection. Instead, he emphasizes investing with a \u201cmargin of safety\u201d and focusing on the intrinsic value of companies, following a medium- to long-term holding strategy. To faithfully reflect his investment philosophy, this study seeks to quantify Brandes\u2019 approach by using a company\u2019s net asset value in place of traditional discounted cash flow models, and builds a backtesting framework to evaluate the strategy\u2019s performance in historical market data. This article introduces the data processing procedures, backtest design, and performance analysis, aiming to demonstrate the feasibility and robustness of Brandes-style value investing within a quantitative framework.<\/p>\n<figure class=\"wp-block-image size-large\"><a href=\"\/en\/news\/quantitative-investment\/\" rel=\"noreferrer noopener\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" alt=\"\" class=\"wp-image-35395\" height=\"107\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E69687E7ABA0E68C89E98895-18.png\" width=\"1024\"\/><\/a><\/figure>\n<p class=\"wp-block-paragraph\"><strong>Margin of Safety<\/strong> : This refers to the cushion when an asset\u2019s intrinsic value exceeds its market price. The concept highlights that even if future business conditions or market environments turn unfavorable, the risk of loss is mitigated because the asset was purchased at a sufficiently low price.<\/p>\n<h2 class=\"wp-block-heading\">Investment Universe &amp; Backtesting Period<\/h2>\n<p class=\"wp-block-paragraph\"><strong>Backtesting Period<\/strong>\uff1a<br \/>From January 1, 2020, to April 21, 2025<br \/>(Set to ensure access to at least 5 years of historical financial data prior to each rebalancing)<\/p>\n<p class=\"wp-block-paragraph\"><strong>Data Collection Period<\/strong>\uff1a<br \/>From 2013 to 2025 (10+ years of historical data for reliable evaluation)<\/p>\n<p class=\"wp-block-paragraph\"><strong>Stock Pool<\/strong>\uff1a<br \/>All listed companies on the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx)<br \/>(Only includes firms with complete financial data from 2013 onward)<\/p>\n<p class=\"wp-block-paragraph\"><strong>Benchmark<\/strong>\uff1a<br \/>TAIEX-Total Return Index ( IR0001 )<\/p>\n<p class=\"wp-block-paragraph\"><strong>Data Source<\/strong>\uff1a<br \/>Extract the necessary data for Charles Brandes\u2019 stock selection criteria, such as: P\/E Ratio, insider holdings, stock prices from <a href=\"\/en\/databank-solution\/financial-data\/\" rel=\"noreferrer noopener\" target=\"_blank\"><strong>TEJ Financial Data<\/strong><\/a> and <a href=\"\/en\/solution\/market-data\/\" rel=\"noreferrer noopener\" target=\"_blank\"><strong>TEJ Market Data<\/strong><\/a><\/p>\n<p class=\"wp-block-paragraph\"><strong>Simulation Method\uff1a<\/strong><br \/>Backtests are performed only on firms that meet data quality and completeness requirements, to maintain the rigor of performance evaluation.<\/p>\n<p class=\"wp-block-paragraph\"><strong>Rebalancing Dates\uff1a<\/strong><br \/>The portfolio is rebalanced every 60 trading days.<\/p>\n<h2 class=\"wp-block-heading\">Strategy Logic<\/h2>\n<p class=\"wp-block-paragraph\">This strategy aims to select stocks that exhibit solid financial structures, substantial insider ownership, and low market valuations\u2014ensuring a margin of safety. The specific screening criteria are as follows:<\/p>\n<ul class=\"wp-block-list\">\n<li><strong>Latest Debt-to-Equity Ratio &lt; 40%<\/strong><br \/>The debt-to-equity ratio (total liabilities \/ shareholders\u2019 equity) reflects a company\u2019s leverage level. A ratio below 40% indicates that the company relies primarily on its own capital, faces less debt pressure, and is more resilient during market volatility or rising interest rates.<\/li>\n<li><strong>Latest Insider (Board and Supervisor) Ownership &gt; Market Average<\/strong><br \/>A higher-than-average insider ownership suggests that top executives are confident in the company\u2019s future and have their interests closely aligned with those of shareholders, which helps ensure high-quality decision-making and long-term stability.<\/li>\n<li><strong>Trailing 12-Month Price-to-Earnings Ratio (P\/E) &lt; Market Average<\/strong><br \/>The P\/E ratio reflects the market\u2019s valuation of a company\u2019s future earnings. A below-average P\/E indicates the stock is relatively undervalued or that its earnings growth potential has not been fully recognized by the market, offering potential upside.<\/li>\n<li><strong>Price-to-Cash Flow Ratio (P\/CF) &lt; Market Average<\/strong><br \/>Using cash flow instead of earnings reduces distortion from accounting manipulation. A low P\/CF ratio means investors acquire real cash flow at a lower cost, implying lower investment risk.<\/li>\n<li><strong>Latest Price-to-Book Ratio (P\/B) &lt; Market Average<\/strong><br \/>A P\/B ratio below the industry average suggests the company is undervalued relative to its book value, offering a higher margin of safety.<\/li>\n<li><strong>Latest Price-to-Book Ratio (P\/B) &lt; 1.0<\/strong><br \/>When the P\/B ratio is below 1, the stock trades at less than the company\u2019s net asset value, theoretically providing a \u201cbelow liquidation value\u201d buffer and further reducing downside risk.<\/li>\n<\/ul>\n<p class=\"wp-block-paragraph\">In practice, stocks meeting the above criteria are selected and purchased using an equal-weighted allocation. These holdings are maintained until the next rebalancing date. Given that this is a value investing strategy\u2014which typically requires a longer time horizon for prices to reflect intrinsic value\u2014the portfolio is rebalanced every 60 trading days.<\/p>\n<h2 class=\"wp-block-heading\">Backtesting Performance Charts and Analysis<\/h2>\n<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"Charles Brandes' \" class=\"wp-image-34474\" height=\"989\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E3848D.png\" style=\"object-fit:cover\" width=\"1790\"\/><\/figure>\n<p class=\"wp-block-paragraph\">The strategy achieved an\u00a0<strong>annualized return of 23.75%<\/strong>, significantly outperforming the market benchmark, which recorded only\u00a0<strong>15%<\/strong>\u00a0over the same period. The\u00a0<strong>Sharpe ratio<\/strong>\u00a0of the strategy is\u00a0<strong>1.15<\/strong>, indicating that for every unit of risk taken (after deducting the risk-free rate), the strategy delivered\u00a0<strong>1.15 units of excess return<\/strong>.<\/p>\n<p class=\"wp-block-paragraph\">Results from the\u00a0<strong>CAPM regression<\/strong>\u00a0show an\u00a0<strong>alpha of 0.15<\/strong>\u00a0(i.e., 15% annualized), demonstrating the strategy\u2019s consistent ability to generate excess returns. The\u00a0<strong>beta is 0.61<\/strong>, suggesting that the portfolio\u2019s sensitivity to market movements is only about half that of the broader market, offering substantial diversification benefits.<\/p>\n<p class=\"wp-block-paragraph\">Examining the cumulative return curve, the strategy widened its lead over the benchmark from late 2020 to Q1 2021, primarily due to a valuation recovery in high-quality value stocks such as shipping and traditional industries. During the broad bull market from early 2023 to early 2024, value stocks also benefited from overall market momentum, allowing the strategy to maintain its outperformance. This strategy further confirms that a stock selection approach centered on\u00a0the <strong>margin of safety<\/strong>\u00a0can deliver significant advantages even in bullish market conditions.<\/p>\n<figure class=\"wp-block-image aligncenter size-full caption-align-center\"><img loading=\"lazy\" decoding=\"async\" alt=\"Charles Brandes' \" class=\"wp-image-34476\" height=\"797\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E38491E3849C.png\" width=\"1199\"\/><\/figure>\n<p class=\"wp-block-paragraph\">The strategy experienced multiple periods of market turbulence, including the onset of COVID-19, valuation corrections, and interest rate hikes. The five most significant drawdowns ranged from approximately\u00a0<strong>\u221210% to \u221230%<\/strong>, with most recovering within\u00a0<strong>3 to 6 months<\/strong>. However, a more significant drawdown occurred between\u00a0<strong>2024 and 2025<\/strong>, coinciding with the final phase of a market bull run\u2014a period that typically presents fewer opportunities for value investors. This phase also represents an opportune time to\u00a0<strong>scale out of certain positions<\/strong>,\u00a0<strong>rotate into cash<\/strong>\u00a0or\u00a0<strong>short-duration bonds<\/strong>, and prepare for the next investment cycle.<\/p>\n<h2 class=\"wp-block-heading\">Empowering Quantitative Investors with TEJ\u2019s Structured Data Solutions<\/h2>\n<p class=\"wp-block-paragraph\">Behind every sound investment strategy lies robust, reliable data\u2014and that\u2019s exactly what TEJ delivers. For over three decades, TEJ has led financial data innovation in Taiwan, providing institutional-grade datasets tailored for quantitative research.<\/p>\n<p class=\"wp-block-paragraph\">The <strong>Factor Library<\/strong> features over 100 alpha factors across value, momentum, quality, and risk dimensions\u2014all meticulously constructed using point-in-time methodology. Each factor is standardized, comparable, and ready for direct application in ranking, screening, and multi-factor model development.<\/p>\n<p class=\"wp-block-paragraph\">The <strong>Quantitative Investment Database<\/strong> offers point-in-time data spanning fundamentals, financials, market activity, and event-driven information. Designed for quantitative analysis, it empowers users to build and test investment strategies using clean, time-aligned datasets free from look-ahead bias.<\/p>\n<p class=\"wp-block-paragraph\">With TEJ, global investors gain transparent access to Taiwan\u2019s capital markets\u2014transformed into structured intelligence that powers data-driven strategies.<\/p>\n<figure class=\"wp-block-image size-large\"><a href=\"\/en\/solution\/financial-data\/\" rel=\"noreferrer noopener\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" alt=\"\" class=\"wp-image-35397\" height=\"107\" src=\"https:\/\/www.tejwin.com\/en\/wp-content\/uploads\/2026\/08\/E69687E7ABA0E68C89E98895-17.png\" width=\"1024\"\/><\/a><\/figure>\n<div aria-hidden=\"true\" class=\"wp-block-spacer\" style=\"height:22px\"><\/div>\n<h2 class=\"wp-block-heading\">Further Reading<\/h2>\n<p class=\"wp-block-paragraph\"><a href=\"\/en\/insight\/from-business-cycle-indicators-to-asset-rotation-a-quantitative-strategy-to-avoid-bear-markets\/\">From Business Cycle Indicators to Asset Rotation: A Quantitative Strategy to Avoid Bear Market<\/a>s<\/p>\n<p class=\"wp-block-paragraph\"><a href=\"https:\/\/www.tejwin.com\/insight\/%e6%8f%ad%e9%96%8b%e6%8a%95%e8%b3%87%e5%a4%a7%e5%b8%ab%e7%9a%84%e9%81%b8%e8%82%a1%e5%af%86%e7%a2%bc%ef%bc%9a%e9%ba%a5%e5%85%8b%ef%bc%8e%e5%96%9c%e5%81%89%e6%94%b6%e7%9b%8a%e5%9e%8b%e6%8a%95%e8%b3%87\/\">Michael Sivy\u2019s 4 Key Income Investing Principles Unveiled<\/a><\/p>\n<p class=\"wp-block-paragraph\">\n","protected":false},"excerpt":{"rendered":"<p>In the field of investing,\u00a0business cycles\u00a0have always served as an important reference. Whether it\u2019s fluctuations in the macroeconomy or the ups and downs of corporate earnings, these cycles play a crucial role. Charles Brandes, a distinguished disciple of Benjamin Graham, founded Brandes Investment Partners in 1974 and has since grown its assets under management from $130 million to over $75 billion. The firm\u2019s Brandes Global Equity Fund achieved an impressive 20-year annualized return of 17.91%, significantly outperforming the MSCI World Index, and has received Morningstar\u2019s five-star rating along with numerous international awards. Another flagship product, the AGF International Value Fund, has also demonstrated outstanding long-term performance. Brandes himself has been repeatedly ranked among the world\u2019s top fund managers.<\/p>\n","protected":false},"featured_media":1020,"template":"","tags":[65,70,71],"insight_category":[13],"class_list":["post-1025","insight","type-insight","status-publish","has-post-thumbnail","hentry","tag-python","tag-tej-api","tag-quantitative-strategy","insight_category-quant-research"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/1025","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight"}],"about":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/types\/insight"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media\/1020"}],"wp:attachment":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media?parent=1025"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/tags?post=1025"},{"taxonomy":"insight_category","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight_category?post=1025"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}