Showing posts with label core tenets in value investing. Show all posts
Showing posts with label core tenets in value investing. Show all posts

Sunday 15 November 2009

Value Investing Basics

Value Investment Selection
In order to determine whether a stock is qualified as a value one, you should look for these basic criteria:

1.The Price to Earnings (P/E) Ratio
It should fall in the 10% of the lowest that is typical for the sector in which the company falls.

2.The Debt to Equity Ratio
It should not be greater than 1.

3.The PEG
It should not be greater than 1. This shows that the stock has been overlooked by the market and as a result its value is below its real one.

4.Earnings Growth
A record of consistent Earnings Growth should be provided over a long period of time. You should look for an earnings growth from 6% to 8% for a 7 to 10-year time period.

5.Stock Price
The price you pay for the stock should not exceed 70% of the intrinsic per share price of the stock.

6.The Price to Book ratio
It should not be greater than 1.



http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html

Value Investing Basics (II)

Value Investing Basics

Value investors have a long-term focus. They buy and hold stocks for long periods of time, waiting for the market to correct the price of the stock to match its real value.

Therefore, when considering a particular company the first thing that a value investor does is the examination of the business's fundamentals. If there is nothing wrong which can be attributed to the low price, then the stock is a perfect option for an investment. After the market corrects the price, the value investor is rewarded for his/her patience.

A decrease in the price of a stock may be an indication for a value investment candidate. However, sometimes the market is right when decreasing the price due to problems with the fundamentals of the business. Some of the reasons for the decline may be a fall in the earnings or revenues. Additionally, the industry may have experienced a change, which has affected the product line of the company.


http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html

Value Investing Basics (I)

Value Investing Basics

Most investors regard value investing as purchasing cheap or discounted stocks. However, this investing strategy is more than this.

Value investing refers to the purchase of stocks that have been overlooked by the market and as a result their price is below their real value. This means that the real value of a stock is not correctly reflected by the price at which it is traded.

If you are a value investor you should pay special attention to the business fundamentals. The latter should be on the top of your list of criteria and priorities. Only after this should the other influences be considered.

Business fundamentals that you should study include:

•Earnings growth
•Cash flow
•Dividends
•Book value

These should be of higher importance than the rest of the market conditions that may influence the price of the stock you have selected.

http://www.stock-market-investors.com/stock-strategies-and-systems/value-investing-basics.html

Thursday 2 July 2009

The real question in value investing

The real question in value investing is how do you identify the lemons that are mixed in with the ‘values’?

Obviously, when you’re digging into “value” companies, you’re seeking out companies that are currently undervalued by the stock market. This can happen for a lot of reasons:

  • these companies are boring,
  • these companies are not experiencing rapid growth, or,
  • more ominously, something nasty is afoot with this business.

The problem with teasing out companies that are up to shenanigans is that there’s no ready made recipe for identifying them. This is where homework comes into play. You need to study the individual companies you invest in. Careful study of a company will often identify fundamental problems in their business plan - and if you see those things, you can stay away.



http://www.thesimpledollar.com/2009/02/06/the-intelligent-investor-four-extremely-instructive-case-histories/

Thursday 25 June 2009

Core Tenets in Value Investing

Read this promotional pamplet. It contains all the core tenets of value investing in a single page. Very useful indeed.


5 Secrets of Buying Dream Stocks at Bargain Prices
How to Build Your Financial Dreams On a Foundation of Value


To make real money in today's market you need to be a stock picker. And no one does it better than Warren Buffett.

Buffett is the ultimate value investor. His results are legendary. He's beaten the S&P 500's total return by nearly 60 to 1. If you had invested in his Berkshire Hathaway stock in 1965, you would have… Turned Every $10,000 into nearly $50 Million!


To Buffett, value investing is the only way to invest. It's the art of finding great stocks selling below their real value.

But finding authentic value stocks is anything but easy these days. There are many once-great companies that look cheap, but are actually traps that aren't even worth their new lower price.

And judging a stock's real value is no simple feat either. In the age of Enron, company insiders have made an art form of disguising their true financial health.

How to Find Great Value Stocks
My name is Philip Durell. I'm Founder and Senior Advisor of Motley Fool Inside Value. It's my passion to help individual investors find great value stocks. I believe value investing is the key to building life-changing wealth.

That's why value stocks belong in every portfolio. And it's why every investor needs to learn to think like a value investor. As Warren Buffett's long-time business partner Charlie Munger says, “All intelligent investing is value investing.”

5 Secrets of Value Investing
So how do you do it? Here are some of the secrets the legendary value investors use to find great bargains:

Buy When Wall Street Won'tThe big players on Wall Street are very short-term focused. They'll often dump stocks just for missing one earnings estimate. But value investors favor a longer-term view. We can find hidden value in stocks that may be down as much as 30%, based on small news items and diligent research.


Own Companies, Not Stocks — Don't buy “stocks.” Instead, become a business owner of companies with strong competitive advantages. Buffett looks for companies with solid financial performance managed by seasoned and savvy executives.


Beware of the ‘Value Trap’ —Don't be fooled by judging stocks on price alone. Just because a former high-flying stock is selling for half-price doesn't mean it's a good value. The stock may have much farther to fall and may never recover. Without knowing its intrinsic value, or possible catalysts for turnaround, you can't know if a low price is a good value or not.


Know the True Value —Price is what you pay, value is what you get. Cash flow is the real health of the business. As Buffett says, “Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” Discounted Cash Flow (DCF) is a powerful tool to help you know whether to buy, hold, or sell. (We offer our subscribers a unique DCF calculator on our website that makes this simple to do.)


Don't Overpay for Growth — It's not true that value stocks can't be growth stocks. Growth is a component of value. It's just that value investors don't rely on growth. Value investors minimize risk by looking at the worst case first. They choose investments with a built-in margin of safety. That's why value stocks are the best way to follow Warren Buffett's famous rules: Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.


As Buffett's mentor Benjamin Graham wrote in The Intelligent Investor, “In the short-term, the market is a voting machine, in the long-term it is a weighing machine.” So as a value investor, you're not waiting on a rising market to lift your stock — only for the market to realize your stock's true worth. This is a much more certain way to make money.


Value Stocks Earn Market-Crushing Returns
Value beats every other type of stock investing across all types of markets hands down.
Value stocks returned an average 12.6% annual return from 1926-2002, according to a study by Ibbotson Associates. $1,000 invested in 1926 have turned into more than $8,000,000!
Another study by Ibbotson looked at the period between December 1968 and December 2002. During that time value stocks returned 11.0% per year, growth stocks returned 8.8%, and the S&P 500 returned 10.2%.

At those rates

$10,000 invested in the S&P 500 grew to $270,081.
$10,000 invested in growth stocks grew to $175,200.
$10,000 invested in value stocks grew to $346,300.
Value stocks beat growth stocks nearly 2 to 1 and beat the S&P 500 more than 4 to 1!

Invest Like the Masters
I follow the trails blazed by legendary investors such as Benjamin Graham and Warren Buffett. In their value-investing approaches, they've searched for companies with beaten-down stocks that still had solid management, free cash flow, and attractive assets.
To spot the great turnarounds, I constantly search the market for out-of-favor companies. I run numerous stock screens.
And then, for the few select companies that make it on my watch list, I run a series of metrics — including discounted cash flow (DCF) analysis — to give me my estimate of a company's intrinsic value.

Once I have the fair value, based on my required margin of safety, I sit back … and wait patiently. I then wait for the share price to drop below my “Buy Below” price. This gives me a margin of safety for my investment. When I spot such a bargain, I buy. Then I again patiently wait, this time for the market to recognize the stock's real value. It usually doesn't take long until the market drives up the price of the stock to levels at or above my intrinsic value estimate.

In short, I seek good deals at great prices. Having a margin of safety allows me to minimize the risk while aiming for solid returns.

Get Great Stocks at Bargain Prices
Buying great stocks at bargain prices is the surest way to get rich. You've estimated your profit before you put down your money. Value investing is the polar opposite of speculation. You squeeze out risk at every step. Then, you can buy a dollar's worth of value for as little as 50 cents because you know what you're buying. You're not basing your decision just on price, but the intrinsic value of the company you're buying. That's why…

Value Investors Sleep Well
If you're like many investors, you're still suffering from the current market meltdown. You're painfully aware that it takes a 100% gain just to break even after a 50% loss. That's why you want to avoid losing money at all costs. Value investing is the best way to find safe stocks. And they're the best way to make great profits across all types of markets.

Market-Beating Returns
So, how are we doing? Since we launched Inside Value in September 2004, we've been soundly beating the market. Even though many of my picks are very recent in a value investor's time frame, we've had great results with stocks such as:

MasterCard — locked in a 279% gain
Omnicare — locked in a 102% gain
Intuit — locked in a 84% gain

We're also collectively beating the S&P 500 since our service was founded. That's all my stocks, the winners and the losers. And, on a risk-adjusted basis, the returns are even better.

Value is the key to investing success. And that's why I invite you to join me and profit from the best values in the stock market. My commitment is to help you find great value stocks. INSIDE VALUE is the best way I know to find solid, well-managed companies that are worth more than you are paying.

Inside Value will help you:
Build your retirement dreams on a rock-solid foundation
Value is what intelligent investing is all about. You'll get all the tools and advice you need to invest in great value stocks. And along the way you'll gain the discipline, objectivity, and patience of a great value investor.

Watch your investments like a hawk
Our focus on value and free cash flow will help you keep a close eye on the stocks you own. Our live interactive scorecard shows your results throughout the trading day. It makes it easy to track each of your stocks against the S&P 500's return. Our weekly updates will keep you informed and up-to-date on any important developments with your stocks.

Experience new freedom from worryNo matter what the market does, you'll own stocks that are already priced below their value. They'll better hold their prices in bear markets and will soar higher in bull markets. Most of my recommendations are long-term “buy-and-holds,” so you don't need to worry about trading or timing the market. But when it's time to take profits, or if there's another reason to sell, I'll let you know.

Discover your true potential as an investor — Value investing is what intelligent investing is all about. You'll expand your “circle of competence” as a knowledgeable value investor. You'll find that the tools and outlook of a value investor will help you in every investing situation, from choosing new stocks to managing your portfolio to knowing when to sell.
Simplify your life — There's never been an easier way to use all the tools of value investing. We make it easy for you to grab great bargains in companies you'll want to own for the long term.

All told, Inside Value is a total investor information system to help you build real wealth in the fastest, most reliable way possible.


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Your Subscription Includes:

12 Monthly Issues of Inside Value — Each month my team and I will bring you two stock picks that I believe are huge bargains based on their intrinsic value. With each stock we recommend you'll get the results of all our research covering: Business Analysis, Competitive Landscape, Valuation, and Risks. You'll get everything you need to take action — including a buy-below price, intrinsic value per share, and a risk level.

You'll receive your issues delivered in print form via U.S. mail. You can also download the issues online on the day of release, and you'll also receive an e-mail telling you the instant my latest issue is available online.

Each Issue of Inside Value includes these features:

Best Buys Now — These are the best opportunities on our scorecard right now in terms of potential returns and risk, and the Inside Value team determines this list every month based on rigorous Qualitative and Quantitative Analysis.

Scorecard — Where we track all our stock returns against the S&P 500.

Valuable Knowledge — This feature focuses on sharing the skills and insights that will help you become a better value investor.

Annual Review of Stock Performance — You'll get a complete recap of the performance of all our past picks every year.

And Your Subscription also includes:

Live Interactive Stock Scorecard — Our scorecard helps you keep track of how each of our recommendations is performing relative to the S&P 500. It's online and constantly updated throughout the trading day, providing current buy-below prices and intrinsic values for every stock.

Bonus Updates — You'll receive an e-mail update on our stocks each week. We'll also send you updates whenever there is important information you need to know about right away — from buying and selling a stock to our analysis of a development in the news.

Online Discussions with Value Investing Experts — You'll also have the chance to participate in our online Q&A forums where you can ask questions and get specific answers from my team of analysts.

All Back Issues — Every back issue of the newsletter is archived on the site so you can read every recommendation and every company update we've published.

Access to Our Subscriber-Only Website — Where you'll get a wealth of information to make you a more successful investor.

Interviews with the Experts — Where I bring you exclusive interviews with key executives at many of our companies and some expert value investors. You'll meet people such as George Buckley, the new CEO of 3M who also led the turn-around at Brunswick Corp.; Joel Greenblatt, founder of Gotham Capital and author of The Little Book that Beats the Market; Wayne Huyard, president of MCI; and scores of other leaders.

Discounted Cash Flow Calculator — This unique calculator gives a fast and easy way to value a company. You'll be able to decide in a matter of minutes whether it's a great value worth looking into. The calculator makes it simple to find the intrinsic value of the company per share; your margin of safety; and price to value ratio. This tool by itself could help you find great investments or save you from a huge mistake. Make sure you run any major investment through this unique and easy-to-use investment tool. It's only available to Inside Value subscribers at our password-protected website.

FREE Membership in Inside Value Discussion Boards — This online community includes conversations on every stock we've recommended in the history of the service. Where else can you learn about a stock directly from the candid experiences of the company's employees, customers and investors?

Plus:
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Low Risk, High Rewards
It is my sincere wish to see you achieve your financial dreams with the power of value investing. Buying value stocks is the surest way to life-changing wealth. And Inside Value is the best source I know to help you do just that. I hope you accept this no-risk offer today.

Sincerely,

Philip Durell
Senior Advisor and Founder, Motley Fool Inside Value

http://www.fool.com/shop/newsletters/14/4163628d-26ae-4904-ab30-30006213e8d9.aspx?tuid=1812089&source=iivedilnk8251986