IF YOU ABSOLUTELY MUST PLAY THE HORSES

IF YOU ABSOLUTELY MUST PLAY THE HORSES

Though Ben Graham in no way recommended trying it, he did say that there is a way to combine market timing and value investing principles. This method was originally developed by Roger Babson, a contemporary of Graham’s who provided financial services and investment counsel. However, Graham noted, the method makes heavy demands on human fortitude, and it can keep an investor out of long stretches of a booming market. It sounds simple. Yet for those who realize how difficult it is to follow, this strategy can diminish the risk of trading on market movements.

Here is the way it works:

1. Select a diversified list of common stocks. (The investor can even create an index fund by buying the DJIA, or better yet, deciding which stocks are undervalued in the DJIA and buying only those.)

2. Determine a normal value for each stock (choose any multiplier of earnings that seems appropriate, using 7- to 10-year average earnings.

3. Buy the stocks when shares can be bought at a substantial discount – say, two-thirds of what the investor has established as normal value. As an alternative to buying at one target price, the investor can start buying as the stock declines, beginning at 80 percent of normal value.

4. Sell the stocks when the price has risen substantially above normal value – say 20 percent to 50 percent higher.

The investor thus would buy in a market decline and sell in a rising market.



THRIVING IN EVERY MARKET
Value Investing Made Easy (Janet Lowe):

1. THRIVING IN EVERY MARKET
2. MR. MARKET
3. SUITABLE SECURITIES AT SUITABLE PRICES
4. PAYING RESPECT TO THE MARKET
5. TIMING VERSUS PRICING
6. BELIEVING A BULL MARKET
7. THE PAUSE AT THE TOP OF THE ROLLER COASTER
8. MAKING FRIENDS WITH A BEAR
9. BARGAINS AT THE BOTTOM
10. SIGNS AT THE BOTTOM
11. BUYING TIME
12. IF YOU ABSOLUTELY MUST PLAY THE HORSES