Friday, November 29, 2013

Value Investing through Sectors

The Sector-Value Investment Philosophy

The Sector-Value Investment Philosophy
By Steven M Wizior

When you think of value investing, you instantly think of Warren Buffett. Buffett studied at Columbia Business School. There he met his teacher, Benjamin Graham, who was the pioneer of value investing. Graham published his book "The Intelligent Investor", which goes into depth about value investing. Value investing is an investment philosophy that allows an investor to buy an equity/stock at a cheaper price than it is actually worth. Graham coined the phrase "margin of safety". What does this mean? Margin of safety is a term used in fundamental analysis; it means that a stock has a limitation of how much it can fall in price.

In value investing, the key theory focuses on the long-term. So a person would buy a stock and hold it for years or even decades. The stock's value would increase over time, based on global demand and population growth. Buffett always buys high-quality companies which are simple to understand. Additionally, Buffett always warns investors not to "trade" stocks because moving in and out of positions considerably increases risk and commission-based costs.

So, how do you find a stock with a margin of safety? It deals directly with fundamental analysis. One way to find the margin of safety is using the P/E ratio (Price-to-Earnings Ratio). Another is the P/B ratio (Price-to-Book Ratio). These two fundamental analysis tools permit an investor to attain shares of an undervalued stock. Other tools you can use include the P/S ratio (Price-to-Sales Ratio) and PEG ratio (Price-to-Earnings-to-Growth Ratio). All of these tools are used by Buffett and other successful value investors, such as Charlie Munger and Stephen Jarislowsky.

Now, what exactly is sector-value investing? It is an investment paradigm that employs an even more conservative approach than traditional value investing. When engaging in sector-value investing, an investor will only acquire stocks in principally non-cyclical, low risk sectors. For example, you would invest in a company that does not focus on Research and Development (R&D). Furthermore, you would avoid companies that do not own physical assets.

In the world of investing, many times the phrase "hard assets" arises. Hard assets include top quality brand names or physical assets such as real estate, power plants, pipelines, equipment and vehicles and/or vessels. Conversely, there are sectors such as technology and biotechnology. What do they exactly own? How much money do they spend on R&D?

Sector-value investing predominantly focuses on sectors such as real estate, banking, oil/gas, railroads, shipping, electric/gas production, consumer goods/services and manufacturing. This philosophy focuses on industries that have been around for decades and even centuries. They allow a company to always fall back on their assets in order to build up excess capital in case of an emergency.

Whether you use traditional value investing or sector-value investing, both philosophies work well over the long-term. They allow an investor to own part of top companies and re-invest their dividends over time, which eventually creates a gargantuan return on the initial investment. Many wealthy investors have used this technique for decades and will continue to do so in the foreseeable future.

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Thursday, November 28, 2013

Growth Stocks vs. Value Stocks

The Difference Between Growth and Value Stocks

The Difference Between Growth and Value Stocks
By Martin Lukac

What is the difference between a growth stock and a value stock? You've heard the terms in regards to value and growth investing, but you may not be sure what they exactly mean.

There are no hard, set definitions of growth and value stocks. But you will find that there are some criteria that generally defines these different stocks. The trouble often comes with the labeling of individual stocks that are near the edge of either definition.

Growth and value aren't just investing methods, but they are a way for investors to narrow the stocks they will invest in. History has shown us that they tend to take turns. There are periods when growth stocks do well, and other periods in which value stocks excel. The best investment strategy for the average investor is to hold both in a diversified portfolio.

Growth investing involves focusing on a stock that is growing with potential. Value investing seeks stocks that the market has under priced that have a potential for an increase.

Growth stocks usually feature strong growth rates. You want to see small companies with a 10% or higher growth rate for the past five years, while larger companies need to post a 5% to 7% growth rate. You also want to see a strong return on equity. Consider the earnings per share and the pre-tax margins. Look at the projected stock price for a clue of your potential returns.

When considering a growth stock, you need to use your judgment and common sense. The stock might not meet all of the criteria, but still show signs of being a solid growth stock. For example, it may not have a five-year look to see yet, but still be a significant player in a growing new industry.

Value stocks are often confused for cheap stocks, which they are not. However, you may find value stocks listed on the lists of the companies that have hit a 52-week low. Investors look at value stocks as the bargains of investing. The idea is to choose a stock that is under priced and wait for the market price correction. Consider the price earnings ratio, which should be in the bottom 10% of all companies. Look for a price to earning growth ration of less than 1. A good value stock has at least as much equity as debt, twice as much liability as assets and a share price at tangible book value or less.

While there are investors that tend to focus on one type of stock over another, a diversified portfolio of both growth and value stocks will provide you with good returns. If you are a beginning investor, this is an ideal combination. If you find that you have only of them in your holdings, you should consider the benefits of diversification.

Martin Lukac represents Mortgage marketplace. RateTake matches consumers with multiple lenders offering low mortgage rates from our network of accredited lenders.

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Wednesday, November 27, 2013

Pick a Stock Based on Value Investing

3 Easy and Fast Tips to Pick a Stock Based on Value Investing Method

3 Easy and Fast Tips to Pick a Stock Based on Value Investing Method
By Tony Dillard

In my opinion, choosing to buy a stock based on the strategy called "value investing" is one of the most effective methods to add value to your portfolio.

Value investing is not a fad. Warren Buffet known as one of the greatest and successful investors of our time (and of all time) has proven once and again (and again) that value investing works, because he applied the principles of value investing to his own company, Berkshire Hathaway. The result? The price went from $12 in 1967 to an astronomical $125,200 (yes! price per share!)

At that price, market cap for this company is $206 billions!

When picking a stock to buy, Buffet generally uses the value investing principles. His stock buying decisions made him (and those people who followed him, too) very wealthy.

The value investing method is all about determining the real worth of a company's underlying assets, and determining the corresponding price per share. Armed with that data, the value investor knows that, even thought the stock value might fall for a few days, in the long run the price will be higher than when he bought it.

Here are 3 fast tips on value investing, when considering a stock to buy:

1. Stock price should be no more than 2/3 of its intrinsic value.

2. Share price should be no more than its book value.

3. The company earnings growth should be positive for at least 3 years in a row.

Of course, there's more to it, but these 3 tips should guide you and motivate to learn more on the subject. Just browse on Amazon and try to pick a good book on value investing strategies... that small investing plus your time and commitment to learn, can make you a successful value investor.

Will you become a wealth and famous investor (like Warren Buffet) someday? If you want to know how the stock market works, then click here and start the easy and fast learning!

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What Is Value Investing?

What Exactly Is Value Investing?

What Exactly Is Value Investing?
By Shawn Seah

There are many people who do not know the correct way to invest, as preached by Ben Graham and Warren Buffett. They confuse investment with speculation, day trading, dumb luck, chance, and in some cases sheer nonsense.

Value investing is an investment paradigm that focuses on a stock's true value rather than on the price movements in the stock market. Speculators bet on stocks going up and down, and there is scant difference between that and sheer gambling. Technical analysts invest money in stocks by looking at the price movements up and down, and making conclusions about where prices are headed before buying and selling. Value investors, on the other hand, just make simple decisions: are the companies in question worth buying? Is there a "margin of safety" between how much I am paying for a stock and what the company is actually worth? It looks simple but it is not, because analysing what the true value of a company is, called fundamental analysis, is very difficult and in some cases an art more than a science. It is simplified, but value investing can be taken to be simply about two key concepts, among others: margin of safety and fundamental analysis. I will be talking about margin of safety and fundamental analysis here.

Imagine a truck going over a bridge. If the truck weighs 1000 kilograms, you would want the bridge to be able to hold at least 2000 kilograms. You would not have a bridge that could only carry 1000 kilograms, because if anything went wrong, the truck would fall over and go into that steep ravine. This is the commonest expression of the key concept of margin of safety. A true value investor would like to have a difference between what he pays and what the company is actually worth. To augment this truck analogy, just remember Warren Buffett's wise saying: "Price is what you pay; value is what you get."

Now, the problem is, understanding that buying a dollar for fifty cents is a good thing, for that is what margin of safety is about, but what next? How do we actually determine how much a company is worth?

This is fundamental analysis. We look deep into the innards and inner workings of a company in order to divine its true value. Does it make money every year? We look at the financial statements and the income statements. What assets does the company own? We look at the annual report to look for net asset value and for the physical assets that the company has, all listed within. Who are the directors? We look at their names and their positions and ask ourselves if they get paid too much, are they reliable, are they expanding the company, are they giving out dividends and the like. Asking questions and using the annual report as a basis to find out answers to those questions is the heart and soul of fundamental analysis. Not only that: questions like what is the general economy like, what are people interested in nowadays, and what are interest rates and how do they affect the economy... these are other related questions that help us understand the factors influencing a company, fundamentally.

In short: margin of safety and fundamental analysis are key to value investing. Research well into the workings and finances of a company, get one with value, and buy it for a cheap price, and voila - you're the next Warren Buffett. Of course, it is not as easy as that and there are many complications along the way, but this is the gist of value investing.

I strongly recommend finding out more about value investing.

I write a finance, investment and money making blog that gives ideas on how to become rich You can access my website at and learn more about finance, business, entrepreneurship, investment, and above all, Warren Buffett and his great value investment techniques and unique philosophy. Cheers!

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bend it like Buffett

Value Investing the Warren Buffett Way

Value Investing the Warren Buffett Way
By Mark Hing

There are almost as many definitions for the term, "Value Investing," as there are people using it. No wonder it can be confusing. However the quintessential definition belongs to the way Warren Buffett does it.

After all, he's made over $50 Billion doing it his way. So if you're going down the Value Investing road, you may as well follow the man who is most successful.

Now most people think that Value Investing is simply buying cheap stocks. Unfortunately there are some serious downsides to simply finding cheap stocks, even fundamentally solid ones, and buying them.

First, the market could take a very long time to realize these stocks are undervalued. At the end of the day, it doesn't matter whether you own excellent value if nobody is willing to pay you for that value. This is called the realization-of-value-problem and is a very real concern, for anyone who invests money in the stock market, because the longer it takes the market to realize the true value of a company, the lower the compounded annual returns will be.

To see why, let's look at an example where a stock that has an intrinsic value of $10 a share is selling at a discounted $5 per share. If the market realizes the stock's true value in a year, the annualized return will be 100%. If it takes two years, the return will be 41.42%. Three years? 25.99%. Five years will return 14.87% and ten years will give a 7.18% return.

As you can see, the differences in annualized returns are significant, and we really don't know when the market will fully value the shares.

Another problem is that a company might look attractive at a particular point in time, but a host of intangibles, such as management integrity or government regulation, that weren't reflected in the numbers could cause an excellent business to decline in the future.

To guard against this occurrence, Benjamin Graham, Warren Buffett's mentor, would widely diversify, sometimes holding hundreds of stocks in his portfolio. He expected some would not perform well, but believed that the ones that did perform would more than offset the ones that didn't. And he was usually right, as his results often showed.

However Buffett soon tired of this way of thinking and started searching for a more efficient way to invest. He famously said that, "wide diversification is only required when investors do not understand what they are doing." This was not a slight at his mentor Graham, who would have agreed with Buffett, because Graham himself had to admit that he did not understand all of the companies he held. There were just too many of them.

Buffett eventually found what he was looking for in the works of John Maynard Keynes, Lawrence Bloomberg and Philip Fisher. When he combined their philosophies with Graham's, he arrived at an investment strategy that has served him well over the past five decades.

Buffett used Keynes' concept of the concentrated portfolio to focus his investment analysis on areas that he knew very well, and no others. During the Internet technology boom of the late 90s, Buffett refused to participate and was ridiculed by many for missing out on huge profits. However Buffett had the last laugh when the crash inevitably came. To this day Buffett does not invest in technology firms because he says that he doesn't understand their business models.

Bloomberg contributed the idea of the consumer monopoly (or economic moat). This is a business that has an extraordinarily high barrier to entry. It could be because of lucrative patents (think pharmaceutical companies), brand (for example, Coke) or a real monopoly (such as Microsoft Windows).

Bloomberg determined that such companies should be able to grow their earnings faster, which would lead to higher returns on equity and, eventually, higher share prices. By filtering on this criterion, Buffett was able to eliminate a large number of companies that had higher risks of failing. This one idea allowed Buffett to remove the need to diversify as widely as Graham had because he was relatively certain that the companies he chose had a far greater chance of success.

Coupled with Keynes' notion of intimately understanding a company's business model, Buffett was at last able to do away with Graham's need to diversify over hundreds of stocks.

Fisher's contribution was the idea of investing only in top-notch businesses and never selling them. This contrasted starkly with Graham's strategy of buying undervalued businesses and then selling them when they reached fair value.

Putting it all together, Buffett now had the seed of his investing strategy. Look for fundamentally solid stocks that represent good value with a built-in margin of safety, invest only in top companies that have a high barrier to entry, only invest in what you know, concentrate your holdings and hold your investments for a very long time.

If you'd like to outperform the stock market, then you can do very well following Buffett's method. He's already proved it works, so why not put it to work for you?

A professional software developer, Mark Hing has over 20 years of investing experience. For the past 10 years he's been creating powerful, easy-to-use investment software packages based on the enduring principles of Value Investing stalwarts such as Warren Buffett and Benjamin Graham.

Mark's best-selling software package is the acclaimed Value Stock Selector. It was designed for investors of all levels to help them find undervalued stocks sporting exceptional fundamentals with just a few mouse clicks.

To learn more about Value Investing and how you can automatically find the best Value Stocks, go to

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Monday, November 25, 2013

Benjamin Graham Investment Strategy

Value Investing Strategy - Benjamin Graham Investment Strategy to Identify Undervalued Stocks

Value Investing Strategy - Benjamin Graham Investment Strategy to Identify Undervalued Stocks
By Jeremy Kong

The central theme about the value investing strategy, so well documented in the Benjamin Graham classic bestseller, "The Intelligent Investor" is about searching and identifying undervalued stocks to buy from the stock market. Although this book was written well over half a century ago, it still remains one of the most important investment books ever written for investors who believed in the fundamental analysis technique for stock selection, in particular, for undervalued stocks.

In his book, the great guru, Benjamin Graham argued that the value investing strategy to identify the undervalued stocks to buy can be carried out based on a just a few simple principles and criteria. Some of his criteria for stock picks for undervalued stocks are interpreted and simplified below:-

1. Firstly, the investor should ensure that the stock price is below two third of the tangible book value of the stock. The tangible book value is the value of the total assets of the company less the total liabilities of the company.

2. The investor should also ensure that the stock price is below two third of the net current assets of the company. The net current assets are the assets of the company that can be immediately converted into cash less the total debt of the company.

3. Thirdly, ensure that the total debt is less than the tangible book value. The rule is that the current ratio, i.e. the current assets divided by the current liabilities must be more than two.

4. The investor should check and ensure that the historical earnings to price yield is higher than the bond yield. The company must also have a history of stable earnings.

5. The company's earnings must show a rising trend and the earnings must have doubled over the last ten years.

6. One other criteria is to ensure that the company's dividend yield is at least two third of the bond yield.

Historical records have shown that many fund managers have benefited from the value investing strategy outlined by Benjamin Graham, and so many glowing tributes from successful well known investors, including the greatest investor of all times, Mr. Warren Buffet have been given to this investing strategy.

Therefore, it is without doubt we should be educating ourselves on the above mentioned principles to acquire that important ability to search and identify the undervalued stocks to buy. Needless to say, by applying this proven investment strategy, the probability of success in profiting from the stock market is certainly enhanced.

It is so important these days to ensure that we are educated in financial planning and investment strategies. Check out Jeremy's blog, Financial Planning & Investment Guide for more value information on this subject.

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Stocks for Value Investing?

How to Find Stocks Value Investing

How to Find Stocks Value Investing
By Joshua Windland

For all those people who wish to invest with the less risk but desire some exceptionally good returns, the usual practice of searching for stocks from sound companies which are temporarily low priced is definitely a good place to start with. This practice which is also called value investing has been in place since decades and can give you immense success with the little experience in stocks.

If you plan to earn good money from the stocks and would like to be on your way to a great retirement without indulging in some great risks, then you must surely try value investing. If you use it in a proper way, then the usage of this strategy permits you to trade safely by using the proven formula which offers lesser risks but huge returns with time.

The basic core of value investing strategy is to look for the stocks which are currently being traded below their actual worth. This means that you just need to locate the well established companies whose stocks have dipped temporarily in the stock market. Now when this company's share bounce back when the markets recover, then you will have high value stocks with you which you can sell to rake in profits.

For searching such stocks, you must look for the strong fundamentals and not just low priced stocks. They must also have historical performance in terms of earnings, cash flow, book value and dividends. This is so because the cheap stocks are not always the best bets, and buying these cheap stocks all the time can turn out to be a huge risk for you as each startup company will never perform like Apple.

A good example for this can be of McDonalds which was a strong stock historically but dipped in the nineties. Now it is currently holding a very high position in the stock market. Everybody who used the value investing in the nineties when the stock market was at its lowest is now sitting pretty on either a solid stocks portfolio or has cashed out his investment.

In order to use the value investing mechanism properly and to your advantage, you must buy each stock as if you are buying a part of that company and is not just doing it for trading purpose. This will assist you in getting less concerned about the external factor which may affect your newly owned company which will surely turn it much easier to see as to how this value investing can eventually pay out.

Joshua has been studying money and now has begun writing articles about it. Come visit his latest website over at [] which helps people find the best information about teenage alcohol abuse [] and offers resources for getting help.

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For Your Consideration in Value Investing

Value Investing and the Value Trap

Value Investing and the Value Trap
By Terence Martin

The value investing strategy hinges on finding the stocks of fundamentally sound companies which are trading at a discount to their true or intrinsic worth. That situation can transpire for all sorts of reasons. A stock (business) can be unpopular with investors because it's temporarily out of fashion, is going against a general market trend or it's off the market's radar. But they're not the only reasons why a stock can be cheaper than it really should be: stocks can be undervalued for other and more worrying reasons.

The fundamentals

To determine if a stock is undervalued or not, value investors analyze a company's financial fundamentals. They'll scrutinise a range of ratios including - but not limited to - Earnings Per Share, PEG, P/E Ratio, Dividend Yield and Payout Ratio, Book Value, Price / Book, Price / Sales Ratio and Return on Equity. No matter how meticulous the analysis, sometimes some of these ratios can be misleading, one of the main culprits being Earnings Per share (EPS). EPS is widely considered to be one of the more important ratios because it shows how much of the company's profit is apportioned to each share. But the fact is that when EPS figure increases it doesn't always follow that the profit increasing accordingly. Although two companies may have very similar EPS, one of them may need substantially more shareholder's capital to generate the same EPS. Out of the two, the most appealing option for the value investor would be the business requiring less capital.

The Margin of Safety

Serious value investors don't take shortcuts. To help them decide whether a stock is undervalued or not, the investor will want to analyze as many of a company's fundamentals as is possible and practical - i.e. they'll turn over as many stones as they can find. When that quantitative analysis identifies an apparently undervalued stock, the next consideration is 'undervalued yes, but by how much?' Because capital preservation is a key issue for value investors, they like stocks which provide a high Margin of Safety (MoS). The MoS is the difference between the stock's current (depressed) price and its true market price - the greater the difference, the higher the MoS. And the higher the MoS, the better insulated the investor's capital against any errors made in their calculations or indeed any post-purchase and substantial market volatility.

The Emperor's Clothes

But even when some of the ratios appear favorable, a cheap stock may not be quite as cheap as it seems and in reality may deserve to be cheap, or even cheaper than it already is. Problems may exist which the company's financial statements are not able or designed to calculate or disclose, some of which include:

� Are the company's products out of date?
� Is the sector in decline?
� Is the management team up to the job?
� Is the competition increasing, or getting smarter?
� Is the business model flawed?
� Is the business carrying too much debt?
� Are doubtful or unconventional accounting procedures being applied?
� Is there a whiff of scandal, corruption or are there are any corporate governance problems?
� Are earnings-estimates revised more frequently than they ought to be?
� Has the company grown purely through acquisitions?

The moral is:

Although the metrics may be attractive, some undervalued stocks thoroughly deserve their low rating. Depending on quantitative analysis alone may only provide a few clues as to why a stock is as cheap as it is. There's absolutely no doubt that unpopular stocks can be good investments: the art is to invest only in those which are best placed to recover from their problems.

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Sunday, November 24, 2013

Value Investing Primer

invest-money <b>Value Investing: A Primer For The Layman Stock Investor</b>

Value Investing: A Primer For The Layman Stock Investor
By Allen Fontana

Value investing can be defined as an investment method developed by Benjamin Graham and David Dodd who coauthored the book, "Security Analysis." Graham subsequently published, "The Intelligent Investor," for the lay person. Value investing takes on many forms but can be defined as buying companies whose shares are deemed to be underpriced using some form of fundamental analysis. Fundamental analysis is the method of using real data such as financial conditions and management of a company to measure the security's intrinsic value. Fundamental analysis is sometimes considered the opposite of technical analysis. Technical analysis is the study of how a security's price behaves and how to use this behavior to make a profit and avoid losses. Think of fundamental analysis as the tool used by investors while technical analysis is the tool used by traders. Of course the delineation is not that black and white and prudent investors or traders use both methods.

Fundamental analysis uses the company's real data to measure the security's intrinsic value. This value is what the investor uses to compare with the security's current market price. Is it underpriced, overpriced or selling at fair value? The difference between the security's intrinsic value and the market price is sometimes called the margin of safety. Graham and Dodd came up with the term "margin of safety" in their book,"Security Analysis." Margin of safety is defined as the difference between intrinsic value and the purchase price of the stock. This difference protects the investor from poor buying decisions and downturns in the general market. Warren Buffet who many consider to be Grahams greatest student calls this term the moat. Buffet subscribes to a very simple value investment philosophy in which he applies two rules. Number one is "don't lose money." and number two is, "don't forget the first rule." Avoiding loss is key to the value philosophy. Investigate before you invest.

All companies have an intrinsic value which is based on its real current value in the event of being purchased by a competitor or a merger. In the long-term, stock prices will reflect this value, but in the short and medium term, market prices can be above or below it. Value investors seek to make the most profit from this difference. Many subscribers to the margin of safety theory advise only purchasing the security when its intrinsic value is 40% to 50% above market price. That is your margin of safety. This margin secures the investment against a permanent loss of capital even though short-term adverse market movements may occur.

Graham used a now famous parable to explain his value philosophy, The Parable of Mr. Market. Stock prices go up and down significantly in value. For a true value investor, the only significant meaning of price fluctuations is that they offer "... an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal." The actual parable can be found in Graham's book, "The Intelligent Investor," chapter 8, The Investor and Market Fluctuations. In a nutshell Graham uses the parable to suggest the attitude an investor should adopt toward fluctuations in prices. Imagine owning a $10000 interest in a company along with a partner, Mr. Market. Every day Mr. Market offers either to buy your interest or to sell you a larger interest. Sometimes his offer is extremely high, allowing you a good opportunity to sell. At other times Mr. Market's price is very low, allowing you a good opportunity to buy. Still at other times, his price quotes are justified by the intrinsic value of the business. Mr. Market is there for your convenience and profit. Mr. Market's price is often wrong and bears no relationship to underlying conditions and values. Graham argues that it is a mistake to let Mr. Market determine what the stock is worth. Form your own independent stock valuation based on real facts and the exploit the difference between those valuations and Mr. Market's price.

For further readings on Value Investing I recommend, "The Intelligent Investor" by Benjamin Graham and "Security Analysis" by Benjamin Graham and David Dodd. Also any annual report issued by Berkshire Hathaway will provide the reader with a wealth of real world common sense value investing. There are also a number of free investment magazines to subscribe to that offer real value and insight. This author recommends Profit Confidential by Lombardi Publishing for proven investment and stock market advice.

Allen Fontana is a freelance writer and blogger on topics such as investing in the stock market, value stocks, life insurance and travel. For more articles on investing and stocks check out Allen's Blog right here [].

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Understand Value Investing?

k2631034 Value Investing Made Easy to Understand

Value Investing Made Easy to Understand
By Kenji A Tay

Value investing is an investment strategy employed by people who are simply known as "value investors". These investors generally buy stocks that are under-valued for some reason. This investment strategy is the corner stone of lasting investment growth. The individuals who practice this investment style are usually survivors of the ups and downs of the stock market and are much more likely to come out wealthier than those who prefer to ride the waves of the market. This form of investment strategy is simply concerned with being able to get the most gain at the lowest cost possible.

A large number of value investors search for stocks that are low priced than the standard price to book. But, the real value of stocks is really no longer easy to measure as it used to be. Not quite long ago, the book value of certain types of goods can be easily estimated, but since the arrival of fast-paced technology and the consistent changing of technological goods, the value of a large number of goods is no longer so easy to estimate.

Benjamin Graham was the first to recognize value investing. Graham circulated this approach to cautionary investing. This simply means, buying stocks that are reasonably safe; this means that the stocks do not fluctuate to a great extent from their book value, protecting value investors from any possible future stock market shocks, whether good or bad.

For those who want to make safe profits on the stock market whilst minimizing risks, value investing is the way to go. You get to avoid the rise and fall of the stock market as opposed to those day traders who just like to ride the stock market investment wave. Day trading is an investment style that is known to be quite risky and is definitely not for the investor who is faint hearted.

It is important that you understand that the stock market has a lot of winners as well as losers. For each stock that is sold in the stock market by a trader, there is a buyer who is buying those stocks. You need to know that only one person, either the trader or buyer can be right. One of these two is making a profit while the other person is making a loss. It is also very important that you clearly understand all there is to know about value investing and how it works before deciding to take advantage of this strategy. You should have a good eye on the stock market's efficiency at any point in time.

If you need only top quality value investing advice and quality resource materials to help you become a successful value investor, simply check out and your goal to be a successful investor will be an achievable one.

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Saturday, November 23, 2013

Principles of Value Investing

long-term_value_of_saving Benjamin Graham's Simple Principles of Value Investing

Benjamin Graham's Simple Principles of Value Investing
By William Wilkie

When it comes to investing in the stock market, there is still no better teacher than Benjamin Graham. He was a British born American investor that lived from 1894 to 1979 and was the reason for the success of such investors as Warren Buffet. He wasn't just a theorist either; he made millions for himself and billions for his disciples.

His reason for successful investing was through value investing. Basically, it means finding shares in companies that are trading below their intrinsic value. This may seam like a deceptively simple formula, but it worked in his day and it still works today.

Intrinsic Value of a Share

So, first let me define what the intrinsic value means. Graham defined this as the value put on a share by the facts as opposed to the value set by the irrational and emotional unpredictable market. The facts are defined as earnings, assets, dividends, prospects, and the management quality of the company.

Obviously, the intrinsic value is not completely stable as it will fluctuate as events affect the company year by year. On the other hand, the market price is a lot more volatile as it is determined by such things as trends, the herd mentality of investors, and the overall market movements. The secret lies in knowing the difference between the more stable intrinsic value and the fluctuating share price and acting accordingly.

Value Investing is Based on Fundamental Analysis

Fundamental analysis is the studying of the economy, the industries, and the individual company to arrive at a value of the share price. With this type of analysis it is possible to find the undervalued shares which are ripe for the taking, or a "buy" situation.

There are however some points that need to be considered; mainly the efficiency of the markets. Although the theory is considered to be correct, there are outside factors that can't be controlled - namely insider trading and human mistakes in the methods and interpretation of the data analysed.

Another problem with fundamental analysis is that when there is continuous analysis of certain industries or companies, the prices can be influenced by the decisions of the stockbrokers and investors acting on the results of the analysis.

The Solution to Influenced Prices

One solution is to look for smaller or medium sized companies that are likely to outperform the market. These companies might be flying under the radar as there will be much less analysis of these companies and therefore the price of the shares will not be influenced by the analysts.

Another opportunity is to find a company in its early days that looks like it will become a "shooting star." Many companies start out because they have discovered a new or profitable market niche with little competition. They grow during the creative initial period and then experience a period of rapid growth and acknowledgment in their field. The next phase is the critical one; when competition emerges the company will be either doomed to failure as they try to diversify into less profitable areas or they will continue on their successful drive forward and continue to grow. Finding these growth driven companies in their early days and holding on to the shares is an investors dream.

William Wilkie enjoys writing about personal finance and investing. Visit his website for Personal Finance Reviews where you will find reviews about the 37 Days to Clean Credit program which is designed to repair your credit history and raise your credit score.

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Value Investing Bargains?

2940956952_d95a582f80 Value Investing: Selecting From The Bargain Bin

Value Investing: Selecting From The Bargain Bin
By Scott Pearson

Picking a beaten-down stock requires a different kind of selection process. Normally, most companies beaten down this far have no earnings to speak of. Of course, if the company continues to earn money, one can apply normal valuation techniques. By that measure, many of these stocks appear outrageously undervalued: an indication of great buys. But this may also be a red flag that things are "too good to be true".

Another criteria we look at focuses on the breakup value of the company and/or the ability of the company to keep operating in troubled times. For example, debt ratios are important because we want to be sure the company will not be swallowed up in its debt payments. Book Value tells us the value of each share based upon the accountants valuations of assets and liabilities. Sometimes, we also look at cash-on-hand to determine if the company is able to continue as a going concern.

A glance at the high and low price that the shares have sold for in the past may indicate no more than how crazy the market was only a few short years ago. Still, if investors were willing to pay $200 per share for a stock two years ago, it is difficult to believe that it's worth less than a dollar today. Maybe the reality is somewhere in between.

Openwave Systems (OPWV $1.12, High $208; Buy Aggressively), is the top supplier of software that mobile service providers use to offer text and instant messaging to customers. It also provides mobile Web browsing software. The company, which resulted from the merger of and, develops products providing wireless data transfer and messaging, mobile e-mail, and directory services. A recent acquisition of SignalSoft adds a new product line, software that assists cellular users to locate destinations or other users. The company has a loyal subscriber base, and outstanding growth prospects. Openwave, however, is typical of today's bargains. Formerly selling as high as $208 per share (no, that's not a misprint), shares today cost only a little over a dollar. With a book value more than 4 times that amount, virtually no debt, and cash on hand in excess of the stock price per share, there can be no doubt that the shares are now selling at outrageously low prices. We believe these shares represent an outstanding high-risk buy at current prices.

To send comments or to learn more about Scott Pearson's Investment Advisor Services, visit

Scott Pearson is an investment advisor, writer, editor, instructor, and business leader. As President and Chief Investment Officer of Value View Financial Corp., he offers investment management services to a wide variety of clients. His own newsletter, Investor's Value View, is distributed worldwide and provides general money tips and investment advice to readers both internationally, and in the U.S.

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Friday, November 22, 2013

Value Investing For You?

Value-Investing2 The Pros of Value Investing

The Pros of Value Investing
By John Efetobor

In my honest and assured opinion, value investing is one of the best things to have happened stock investing. At least; Benjamin Graham agrees with me. Ask Warren Buffet, I know his opinion will not be any different. If your portfolio is going to stand the test if time; I must implore you to look the way of value investing. Before I dig into the pros of value investing, let me attempt a concise explanation of the meaning of the value investing.

Let me give a list of definitions, perhaps you will be able to identify with the one that most appropriately conveys the meaning to you.

- Value investing is when an investor invests in a company trading below its inherent worth.
- When an investor specializes in buying stocks that are grossly undervalued but have not lost their value.
- Value investors buy stocks whose profit potential is far higher than its present price; that way they are able to grow their portfolio to enviable heights over time.
- Value investing is the strategy of selecting stocks that trade for less than their intrinsic value.
- Value investors believe in buying a stock when the selling price is low and sell when it is high.

To be able to excel in value investing; there are certain sure fire tools you must familiarize yourself with; they are tried and tested tools that great value investors have used and are still using.

Top on the list...

The price to earning ratio: The value investor uses P/E ratio to quickly determine the worth of a stock relative to how much a company is earning. The value investor believes the lower the ratio (less than 10) the better the deal.

Strong fundamentals: The value investor believes that for a company to a real bargain, the company must have fundamentals strong and healthy enough to imply that it is worth more than its selling price. The value investor views very strongly current price in comparison to intrinsic value and not to historic price.

Current assets vs. liability: The value investor weighs the size of the current assets over the liability of a company. The value investor is excited when he sees a company whose current asset is twice of current liabilities.

Earnings growth: Value investor believes earnings growth of a company should be al least from 7% - 10% per annum compounded over the last 5 - 10 years.

Earnings per share: The value investor considers EPS as a vital tool that helps estimate the value of a share in comparison ton the selling price. The higher earnings per share; the better the deal.

Why do value investors love value investing?

1. It reduces risk: risk of a share underperformance is greatly reduced because of "guarantee indexes" explained above.
2. Profit possibilities is great and guaranteed
3. The power of compound interest
4. Getting stocks at discounted price.

If you want to beat the current global financial/stock recession, why not pay a visit to
Notice - You are allowed to publish this article in its entirety provided that author's name, bio and website links must remain intact, active and included with every reproduction.

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Cash Flow and Discounted Cash Flow

investing Cash Flow and Discounted Cash Flow: Their Role in Value Investing

Cash Flow and Discounted Cash Flow: Their Role in Value Investing
By Terence Martin

Cash flow, which is the movement of money into or out of a business, not only enables the business to support its operations, it also fuels the growth of the business. Free cash flow (the cash that's available once all cash expenses and taxes have been deducted) enables the business to enhance shareholder value through acquisitions and the development of new products and markets: it also ensures that the business has sufficient funds to pay dividends to its shareholders. For those reasons and others, the amount of cash a business has at its disposal is a very important consideration for long term value investors.

Stock exchange listed companies are required to report (in the form of an income statement) their quarterly cash flows to the SEC, their investors and the public at large. The report summarizes the cash inflows to the company from its on-going operations and external investment sources; it also shows all outflows associated with the business's activities and any investments/capital expenditure made during the quarter in question. Providing the value investor is reasonably sure of the accuracy of the company's cash flow position, he or she can use the current cash flow figure to project future cash flows.

Caveat: Regular income statements don't always reflect the company's true cash position - here's why: although the company may have won or lost a major contract or customer, the subsequent effect on cash flow may not materialize until the following quarter, or even later. In other words, until the consequences of the event show in the company's bank account, the effect on cash flow (and the subsequent profits or losses) resulting from the gain or loss of a contract or a customer, exist only on paper.

What is Discounted Cash Flow (DCF)?

DCF is a valuation metric used by investors (one of the sources of capital for a large business) to gauge the attractiveness of an investment opportunity. Most people accept that money loses value over time, which is a particularly important consideration for value investors who are buy and hold, long term investors: it's a fact that next year's $100 will be worth less than this year's $100! The value investor will apply a DCF analysis to projected cash flows (perhaps over 5 years or more) to arrive at the net current worth of those projected cash flows.

Example calculation

In this instance, the investor wants to estimate how much free cash flow a company will generate over the next five years. To make those calculations, it is necessary to forecast the company's revenues over the period. Once those numbers have been established, the investor must then estimate and deduct the company's operating costs. Finally, the investor then has to deduct taxes, possible capital expenditure (on plant and equipment etc) and the company's working capital requirements to arrive at the free cash flow figures.

The next step is to determine the discount rate to apply - not so much a science, more of an art. One commonly used approach is toutilizethe weighted average cost of capital (WACC) concept. A public company's assets are usually financed by either debt or equity: WACC is the average of the costs of these sources of financing, each source being 'weighted' according to the situation. (In many instances the WACC is the return required from the company's activities as a whole.)

Assuming the company has a fixed annual free cash flow of $500,000, the approximate intrinsic value of the company using the DCF model - and applying a notional discount rate, a WACC of 10% - would be:

Year Cash Flow Divided by present value

1 $500,000 1.10 $454,545.45

2 $500,000 (1.10) 2 $413,223.15

3 $500,000 (1.10) 3 $375,657.40

4 $500,000 (1.10) 4 $341,506.75

5 $500,000 (1.10) 5 $310,460.65

Totals: $2,500,000 $1,895,393.40 = The company's intrinsic or 'enterprise' value

(N.B. If the company has any debt, that figure must be deducted from the enterprise value.)

Having determined the intrinsic value of the investment over five years, the value investor then ascertains an approximate current stock price by dividing the 'real' intrinsic value of the returns ($1,895,393.40) by the number of shares in issue.If the resulting figure is higher than the current cost of the stock, then the stock may be undervalued and represent a sound proposition for the value investor.

About the author
I'm a financial copywriter. My clients create and market financial products and services primarily intended for retail markets -- the public -- as distinct to the institutional markets. Some financial products can be very complicated: my role is to communicate in clear, succinct, unambiguous and engaging terms, the benefits and features of those products. I also provide (through my own websites) plain and simple explanations on topics such as investment, insurances, tax planning, pensions and personal financial advice.

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Beginners' Guide to Value Investing

Value_Investing1 A Beginners Guide: Value Investing

A Beginners Guide: Value Investing
By Jarrod Barber

One of the greatest investors of all time, Warren Buffett, has proven that value investing can work: his value strategy took the stock of Berkshire Hathaway from $12 a share in 1967 to an astonishing $70,900 in 2002. Although Mr. Buffett does not hold himself only to value investing, most of his investments were made on the basis of value investing principles.

A value investor looks for stocks with strong fundamentals or strong earnings, dividends, growth, and cash flow. The basic principal of value investors is that you should first find out what the true price of a share of stock is and then determine if it is undervalued. After you have determined its stock price is below what it should be you would then buy and hold it until it gets back in equilibrium. There are several ways to find out exactly how much a certain stock is worth. The most basic way to do this is determining the company's book value. Book value is calculated by subtracting total liabilities from total assets. If a company has a history that you can go back and check to see what it's average market value to book value ratio this method would prove to be a key factor in your valuation. We can't stop with just book value though we must dive deeper.

The next major indicator I would look at is price to earnings ratio. The P/E ratio determines how the market feels relative to the earnings that the company is making. You would want to look at the stocks historical P/E ratio and determine where their current P/E ratio relative to historical. If it is below the historical average, we could say that the stock is undervalued.

A lot of the time when I'm picking a stock with this method I will also look at the major stock holders and try to determine if any hedge funds or other big institutions have picked up this stock recently. If they have then I will just move on to another stock because it has already been discovered.

Here is a breakdown of some of the numbers value investors use as rough guides for picking stocks. Keep in mind that these are guidelines, not hard-and-fast rules:

� Share price should be no more than two-thirds of intrinsic worth.

� Look at companies with P/E ratios at the lowest 10% of all equity securities.

� PEG should be less than one.

� Stock price should be no more than tangible book value.

� There should be no more debt than equity (i.e. D/E ratio < 1).

� Current assets should be two times current liabilities.

� Earnings growth should be at least 7% per year compounded over the last 10 years.

Remember these are rough guides. You can always try out some new stuff and see how it works for you. Value investing may not seem as sexy as some other styles of trading or investing but it relies on a strict screening process that helps you get to know the company you are buying in order to make the best decision.

If you would like to learn more about investing or trading any financial instrument check out []

CT Futures is an education website designed to help people learn the essentials of investing. Their main focus is on options and futures trading but also provide a wide and diverse set of financial information and personal finance section.

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Thursday, November 21, 2013

Begin Value Investing

Calculator and pen A Beginner's Guide to Value Investing

A Beginner's Guide to Value Investing
By Kenji A Tay

Beginning to invest in the stock market is not a joke, and for the ordinary man or woman in the street, it can be a daunting prospect. There are so many companies to choose from, so many dishes at the stock market buffet that it can seem impossible to decide between them. The tension of making your pick, and then seeing if it grows or falls is one of the things that drives those who ride the stock market, but if you really want to beat the odds and make a profit, then you should consider value investing. This is not a simple thing to grasp, which is why everyone needs a value investing for beginners guide to the market.

The beginning of value investing is to search for company's stocks which are currently below the value of the stock as issued by the company. These stocks can also be called public stocks, and provide you with a high yield, and a low risk. People such as Warren Buffet have practiced with the field of value stocks, and his value investing for beginners would probably advise you to purchase stocks in big-name companies while they are suffering under bad publicity - so every time McDonald's is sued for making people fat, or beverages are is shown to rot kids' teeth, you should buy up their stocks like crazy. You'll then have to sit and wait until people forget about the story, and start buying shares in McDonald's again.

You can also practice value investing by seeking a company that you support. You need to invest in companies who have been going for a long time, more than a decade at best, and have a proven record in share price increase. Make sure that you thoroughly investigate the business, to ensure that it isn't about to go bust. The value investing for beginners guide would also remind you that this is a long-term waiting game, and that people who want the highs of sudden wins at the stock market should look for other types of shares.

Investors should also make sure that the company they choose has a USP, or Unique Selling Point. This is the thing which makes it different from other, similar companies, or the product which everyone is desperate to have. Check that the company has the trademark to these products, and then put money into the stocks like it was going out of fashion. Once you have found a great company to support, with a fantastic product, or a well-known company whose shares are currently bombing, then you know that you will get good value for your money.

For further tips on Value Investing For Beginners in value stocks, visit the website now. StockMarketInvesting101 is a training company that focuses on giving top notched investment training - specializing in value investing. It is the top value investing company in Asia. Visit the website to know more about investments and to make sure your investment is accessible to you.

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Explain Value Investing, please

LIBIShig1 Value Investing Explained

Value Investing Explained
By Angela M. Warnerton

What is Value Investing?

There are two main types of investing: value investing and growth investing. Growth investing is the idea of choosing stocks that you believe will grow over time and therefore have a higher stock price. When the price goes up due to growth, you make more money.

Value investing is very different. You are still looking for stocks that will have a higher price in the future to make money, but not based on growth. Value investors believe that some stocks are priced below or above the true value. If you believe a stock selling for $10 per share is actually worth $12 a share, you also believe it will eventually go up to $12. Buy it before it goes to $12, and when it reaches that, you will make money.

Should you Use Value Investing?

There are many successful investors that use value investing. Warren Buffett is one of the most famous investors who has made millions using this technique. If you want to mimic their success, learning value investing techniques, practicing them, and using them in the real markets will make you money.

Getting Started with Value Investing

First, you need to understand that value investing has everything to do with the corporation behind a stock and not the stock itself. It doesn't matter what trends have happened to a particular stock in the past. You need to understand the company itself. This also means that value investing takes a lot of research.

Fortunately, you should be able to be successful and make a lot of money for the work you put into it. Think of the time you spend researching companies as the work you put into making a lot of money. If you do well, your pay per hour will still be far more than a regular job, in many cases. The more you invest, the more it will be true.

Devise a Strategy for Value Investing

Not only is research important, but having a strategy is important, too. Figure out how you will be deciding which investments to invest in. How will each company need to measure up? Will you decide based on price-to-earnings ratios, price-to-cash flows ratios, etc.?

Pick a strategy and then continue to find the best investment based on your criteria. Search through all the investments you can to find the ones that beat them all. Invest in multiple companies to stay diversified, but never stop looking for the winning investment.

Learn from the Masters

If you are still unsure if you want to use value investing or you want to learn more, learn from the masters. Ben Graham and Warrant Buffett are two incredibly successful investors that used this method. Learn what they have to say and use what you learn. Of course, these aren't the only successful investors out there. There are many great books written on the subject.

Practice before you Risk

If you want to do well in investing, no matter what strategy you use, practice before you commit. Use a stock market simulation game to practice buying and selling stocks in the real stock market before you risk your own money. You can research and trade as you normally would, but you don't have to lose any money.

If you want to be a successful investor, you need to have the right knowledge and experience. Do you want to practice and learn more about investing in stocks for free? You can sign up for a stock investing game and also have the chance to win free cash prizes and gift cards. Get the knowledge and experience you need for free.

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Magic Formula for Beating the Market?

valueinvesting Value Investing - Magic Formula Investing Proven to Beat the Market

Value Investing - Magic Formula Investing Proven to Beat the Market
By Keelan Cunningham

In his book, The Little Book That Beats the Market, Joel Greenblatt explains how investors may outperform market averages by following his "Magic Formula" - simple process of investing in good companies (ones which return high returns on capital) at bargain prices (priced to give high earnings yield).

When tested against Standard & Poors Compustat "Point in Time" database on a portfolio of approx. 30 stocks, Greenblatt's formula actually beats the S&P 500 in 96 % of all cases, achieving an average annual return of 30.8 % over the last 17 years, turning $11,000 into over $1,000,000 over 17 years. Pretty impressive!

Greenblatt's "magic formula" is a purely quantitative, long-term stock investing strategy that works particularly well for small cap stocks (<1 billion) but also works for large-cap stocks (> 1 billion). Essentially, no matter what stocks we invest in, we want a strategy that ensures we can earn much more than we could get from purchasing say a "risk-free" 10 year U.S. government bond generating approx. 6%. Greenblatt's "magic formula" method of stock investing is one strategy that achieves this.

Value Investing

The central premise in Greenblatts's stock investing strategy is that of 'value investing'. Fundamentally, value investing involves buying stocks that are undervalued, fallen out-of -favor in the Market due to investor irrationality. Greenblatt's formula for value investing you could say is an updated version of Benjamin Graham's 'value investing' approach.

Graham is author of the classic bestseller The Intelligent Investor and widely acclaimed to be the father of value investing. Value investing follows the principles of determining the intrinsic value of a company and buying shares of a company at a large discount to their true value allowing a margin of safety to ride out the ups and downs of the share price over the short term but safeguard consistent profitable returns over the long-term. The hallmark of Graham's value investing approach is not so much profit maximization but loss minimization. Any value-investing strategy is very important for investors, as it can provide substantial profits in the long-haul, once the market inevitably re-evaluates the stock and raises its price for a stock to fair value.

Share Prices & Wild Mood Swings

Greenblatt's "Magic Formula" investing is designed to #1. beat the market and #2. withstand any short-term peaks and troughs in share price. Benjamin Graham, described investing in stocks as like being a partner in the ownership of a business with a crazy guy called Mr. Market subject to wild mood swings.

Why do share prices move around so much when it seems clear that the value of the underlying businesses do not! Well, here's how Greenblatt explains it: Who knows and who cares!! All you got to know is that they do. This doesn't mean that the values of the underlying companies have changed. And that's what Greenblatt's "magic formula" takes advantage of once you stick with over the medium-to-long haul.

Screening Stocks: How to Beat the Market

Greenblatt's "Magic Formula" uses two simple criteria to screen stocks for investing.

1. Earnings Yield

First, stocks are screened by Earnings Yield i.e. how cheap they are relative to their earnings. The standard definition of Earnings Yield is Earnings/Price i.e. Earnings Per Share. Greenblatt has a slightly different definition of Earnings Yield and calculates it as follows:

Earnings Yield = EBIT/Enterprise Value EBIT (Earnings before Interest and Taxes)

is used in the formula rather than Earnings as companies operate with different levels of debt and differing tax rates. And Enterprise Value (Market Cap plus Debt, Minority Interest and Preferred Shares - Total Cash and Cash Equivalents) is used in the calculation rather than the more commonly used P/E ratio. This is because Enterprise Value takes into account not only the price paid for an equity stake but also any debt financing used by the company to generate earnings.

2. Return on Capital

Next, Greenblatt's "magic formula" screens companies based upon the quality of their underlying business as measured by how much profit they are making from their invested capital. Return on Capital is defined as: Return On Capital = EBIT/(Net Working Capital + Net Fixed Assets)

Net Working Capital is simply capital (cash) required for operating the business and Fixed Assets are buildings etc. Greenblatt's "Magic Formula" simply looks for the companies that have the best combination of these two factors and voila....more or less. I think it could be worthwhile to look under the bonnet of any companies that satisfy these 2 criteria.

For instance, you might want to consider how sustainable is the company's competitive advantage i.e. how long can a company sustain its superior Return on Capital invested. Also, when applying earnings yield, make sure you are using normalized earnings (rather than overstated or super-normal earnings)? So now that you understand the 2 basic criteria by which Greenblatts "Magic Formula" screens stocks, how do you go about actually doing this for yourself?

How to Pick "Magic Formula" Stocks

The following is a step-by-step breakdown of how to pick "magic formula" stocks.

  1. Screen for stocks with a minimum market capitalization (usually greater than $100 million)
  2. Exclude any utility and financial stocks. This is because of the difference in their business model and how they make money and the oddities of their financial statements
  3. Exclude foreign, non US companies (American Depositary Receipts)
  4. Determine the company's Earnings Yield = EBIT / Enterprise Value.
  5. Determine the company's Return on Capital = EBIT / (Net Working Capital & Net Fixed Assets)
  6. Rank all companies above the chosen market capitalization by highest Earnings Yield and highest Return on Capital
  7. Invest in 20-30 of the highest ranked companies, by acquiring 5 to 7 stocks every 2-3 months over a 12-month period i.e. dollar-cost-averaging.
  8. Re-balance portfolio once per year. For tax purposes, sell losers one week before the year-end and winners one week after the year-end.
  9. Repeat.

This is quite a tedious and time-consuming exercise to undertake by yourself.

"Magic?" Or Discipline?

When it comes down to it, Greenblatt's "magic formula" is relatively simple to understand compared to some of the other convoluted qualitative stock-picking methods out there. So, the toughest part about using the Magic Formula isn't the specifics of the two variables; but actually having discipline and the mental toughness to stick with the strategy, even during bad periods i.e. periods of low-returns.

Greenblatt explains that his strategy will work even after everyone knows about it. Why? Most investors and money managers seek short-term results. Their investment time horizon is short; hence they typically bail after a one or two year period of performing worse than the market average. Remember, this is a long-term strategy. On average, in 5 months out of each year the magic formula performs worse than the overall market. But over a period of 17 years it was shown to generate an average annual return of 30.8%

If the formula worked all the time, everyone would use it, which would eventually cause the stocks it picks to become overpriced and the formula would fail as there would be no bargains to be had. But because the strategy fails over short periods of time, many investors bail, allowing those who stick with it to get the good stocks at bargain prices. In essence, the strategy works because it doesn't always work - a notion that is true for any good investment strategy. So, in summary, if you're looking to build wealth and become rich and are not a hurry to do so than this "magic formula" stock market investing strategy just might be a really good starting point for you.

P.S. Visit and sign-up for FREE insights, tips and exclusives on Value Investing - utilizing our powerful income and wealth creation strategies can fast-track your wealth building so that you get rich for life and build wealth that lasts.

P.P.S. Why not signup NOW for more insider secrets on Value Investing at for FREE & download for free the "The 7 Secrets of Wealth Creation" e-book.

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Wednesday, November 20, 2013

The Advantages of Value Investing

investing Value Investing and Its Advantages

Value Investing and Its Advantages
By Ohad Livne

Value Investing is an investment strategy used by some of the country's more prominent investors, most notably Warren Buffett. The American Heritage Dictionary defines value as a fair price or return. For value investors, this definition is a key concept in choosing which investments are right for purchase at a given time. They are not just looking for stocks that are solid- but are undervalued.

Value investing is an approach to investing that singles out specific investments; stocks or bonds that are undervalued in relation to similar companies. That is not the same as cheap, however. An undervalued investment may still have a high share price in relation to other stocks in the same category. What is important is the relative value of the stock using tools such as the P/E ratio, price to book ratios, and other tools of fundamental analysis.

Fundamental analysis, as opposed to technical analysis, is not about timing the market, or following charts and graphs that attempt to predict what the price of a stock will do next. Fundamental analysis is about using the basics. How a company's financials stand, its credit ratings, and industry outlook are keys to this type of analysis. A stock's revenue and expenses, and its debt and assets all come into play.

One important point to remember when comparing quantitative items such as P/E ratios, is that companies of different sizes or in different industry categories will often have differing scales of what is a good value. What is cheap for a technology stock may not be cheap for a company that produces consumer goods.

For many investors who practice value investing, blue chip stocks are often a key ingredient in their portfolios. Blue chip stocks often epitomize what value investing is all about- companies that have a solid earnings history, strong financials, a history of dividends, and a sizeable market share. These companies become attractive to investors when the market price of the stocks falls enough to make it a bargain, or a value.

Value investing is not only based on purchasing good companies at low prices, but holding for the long term. These investments will generally pay solid dividends that allow investors to reap the benefits of not only market gain, but compound their growth with dividends. Because most brokerages have some sort of reinvestment program allowing investors the option of reinvesting dividends automatically, this compounding effect over time can create impressive returns.

Value investing is all about looking for stocks that are priced at a bargain for the overall value. The market price of a stock will often drop for a company based on recent news reports, economic reports, a CEO change, or other outside forces. However, if the company is stable with a long-term history of success, it may be a prime target for value investors to hold on to for the long term. Value investing offers the benefits of not only compounding through dividends, but the ability to purchase good companies for the long term, with a positive outlook, at a great price.

In Value-Investing-Center: we believe in sharing responsible investing education to people who wants to learn.


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Value Investing Review

value_investing <b>A Brief Review of Value Investing Strategy in the Stock Market</b>

A Brief Review of Value Investing Strategy in the Stock Market
By Hsingchien J Cheng, DMD

There are two basic types of stock market investing strategies: momentum strategy and value strategy. Momentum investing is often short term focused and uses sophisticated technical charts, trend lines, graphs, and computer simulation models to project short-term stock price movements in days (or even minutes) to capture quick profits. Value investing is focusing on a long-term time span with at least a six-month duration in studying trend charts and financial statements. For a non-professional investor, who is unable to monitor the daily volatile stock fluctuation movements, it would be prudent to become a long-term value oriented market player. There are a few golden rules worth to note, which can sound simple, but difficult to master: (1) recognize the market is efficient, (2) recognize the market is irrational, and (3) buy low and sell high.

(1) All public traded companies have to file required financial statements to the SEC (Stock Exchange Commission). Basic financial statements, such as Balance Sheets, Income Statements, Cash Flow Statements, and Owner's Equity Statements, are all public records readily available online. Since these data are monitored and scrutinized extensively by numerous analysts and investors on the Wall Street, the stock price is considered a consensus opinion of collective wisdom. Current use of technology and the internet enables information to be disseminated online to all at the lightning speed. This greatly improved the efficiency of the stock market pricing process.

(2) Market psychology is an equally important factor affecting the stock price. The sentiment can be due to non-economic events such as political, environmental, or other sensational headline news. Due to the inherent human nature fear of total loss, the stock price can easily and frequently drop at a fast and steep rate. This sometimes can create an oversold buying opportunity in the initial steep drop upon breakout of bad news. A prudent investor will ask if the incident would be fatal to put the company out of business, or as an entry point for investing. Some well-known CNN headlines cases are best exemplified by the Toyota Prius break problem, BP oil spill in the Gulf, and the Walmart bribery scandal in Mexico. Although those well-respected brands in their industries went through major setbacks in recent memory, their stock values were all eventually forgiven by investors and were able to fully recover within a year.

(3) One has to buy low and sell high in order to make a profit. There are many theories in the art of investing how to identify a "cheap" stock. One example is the Dow Dog Theory by investing in the second worst Dow Jones stock of the previous year. It takes some courage and insight to find a diamond in the rough. All market sectors are known to have their up and down cycles in approximately seven years. After considering the market fundamentals on why a particular sector or stock is temporary out of favor in the market, one can be confident and patient the fallen angel will have its up days in the future. My basic approach is to seek out the best managed company in the depressed sector that can survive the downturn cycles and benefit the most when recovery arrives later.

A qualitative approach to value investing in the stock market is discussed here. For anyone who is interested in investing as a DIY (Do- It- Yourself) project, there are numerous amounts of information available online or in publications. Education cannot guarantee getting rich in the stock market, but it will reduce the risk of ignorance. An educated investor, who is familiar with different concepts and strategies in both the short-term and long-term investing, will enjoy stock market investing as a fun and profitable hobby.

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Value Stocks

Value-investing-300x198 Value Investing and Value Stocks Explained

Value Investing and Value Stocks Explained
By Terence Martin

The value investor adheres to the principle of buying only undervalued stocks - undervalued in the sense that the stock's current price fails to reflect (as far as the investor is concerned) its 'fair' market price or its true 'intrinsic worth'. Famous advocates of the value investing philosophy include the legendary and very much alive investor Warren Buffet, and the late Benjamin Graham - one of the first proponents of value investing, a subject he taught as a professor at the Columbia Business School in 1928.

The overriding reason why value investors seek out undervalued stocks is because value stocks tend to offer a higher degree of capital preservation than growth stocks. Value investors are not so much concerned with how much they might make out of an investment, but how much of their capital they could lose - i.e. having bought a stock, what are the chances of the price falling never mind rising?

What's a stock worth?

Depending on when and where you look - and even if the business appears to be totally sound and is making money - it's not particularly difficult to find stocks where, for one reason or another, the stock price fails to reflect the intrinsic worth of the business. But how can a value investor establish a company's true intrinsic worth? In other words, how does the value investor pinpoint an undervalued company?

It's all in the numbers

Essentially, value investors use cold, hard, quantifiable historical data to determine whether a stock is undervalued or not. The experienced value investor will analyze a range of the businesses' financial fundamentals such as the price-earnings ratio (P/E), earnings yield, discounted cash flow analysis (DCF) and price-to-book ratios - to name but four of the nine+ key fundamental ratios. The numbers that emerge from that quantitative analysis provide a reasonably accurate indication of the company's real worth and whether its shares are fairly valued or not. If a stock's fair value is higher than its current market price, then that stock might be a value stock - assuming of course that there are no obvious reasons why the price is lower than it ought to be.

Why stocks are undervalued

Assuming the stock doesn't warrant the cold shoulder from investors, stocks can be undervalued because they're not particularly popular with the investors at that moment of time, or simply because the stock is off the market's radar. Even if the fundamentals add up, a stock can deserve to be undervalued because of disappointing results, a poor credit rating, management changes, a scandal of some kind, the business is unfashionable, or there are problems relating to the company's products or services. Where those circumstances exist, and the stock price is lower than the fundamentals suggest it ought to be, that stock is sometimes deemed to be a 'Value Trap'.

Comparing apples with apples

It is also possible for two investors to analyze the same fundamentals and each come to a different conclusion regarding the intrinsic value. If however each investor calculated the values applying Benjamin Graham's principles - where the focus is totally on documented historical numbers - both individuals would reach the same number.

About the Margin of Safety

By purchasing a stock which is priced at less than its real worth, the chances of the price falling much further are relatively low and as such the investor's capital is less exposed to risk. For that reason, value stocks are considered to offer a 'Margin of Safety' - the higher the MoS, the better protected the investors capital is judged to be. As mentioned previously, it can be extremely difficult to calculate accurately a stock's intrinsic worth, so a reasonable Margin of Safety (MoS) can shield the investor from the adverse effects of incorrect calculations, a market downturn, or both. For large cap, blue chip and highly liquid stocks, and having established the stock's intrinsic value, the value investor would hope to purchase that stock at a 90% discount to its intrinsic value - i.e. a 10% MoS: more speculative, smaller or illiquid stocks should ideally be bought at a discount of 50%+ to their intrinsic value, thus providing a 50% MoS.

The attractions of value investing

� The MoS can provide an element of capital preservation
� Value investing is a single minded and highly disciplined approach: Value investors make their investment decisions based on cold, hard facts, rather than hype, fashion, trends or human emotions
� The returns: In 1984, having examined the performance of investors who worked at Graham-Newman Corporation and were thus most influenced by Benjamin Graham, Warren Buffett concluded that as a doctrine, value investing is, on average, successful in the long run

The disadvantages of value investing

� Value investors must be prepared to miss out on short term investment opportunities
� Value investing requires willpower. Value investors buy when other people are selling and sell when other people are buying, which can pose psychologically difficulties for some investors
� Value investing demands patience - essentially it's a 'buy and hold' strategy
� The 'value trap': a stock may be undervalued not just because it's out of favour with the market but because it deserves to be
� The importance or relevance of more qualitative analytical factors such as the abilities of a company's management or the value of its brands or goodwill are not taken into account

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