Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Building
Your Own Value Investing System (Part I) |
Published: September 28, 2005
For the novice investor, choosing an appropriate investing strategy
can be a challenging, yet critical first step. To be sure, there are a
dizzying variety of theories to choose from, each with a large group of
proponents who claim that their methodologies are the surest way to
achieve market beating returns. Trying to decide between growth versus
value, fundamental versus technical, top-down versus bottom-up, and
active versus passive investing styles can sometimes be an overwhelming
task for investors.
Not surprisingly, people with different attitudes and philosophies are
naturally drawn to different types of investments. Those with high
risk/reward profiles, for example, may be attracted to growth investing,
which places a premium on fast-growing businesses. Growth investors
believe that companies with accelerating sales and earnings offer the
highest potential returns, regardless of valuation levels.
Others belong to the "momentum" school of thought, where
relative strength is valued above all else. In other words, they simply
buy whatever is currently going up and sell whatever is currently going
down.
Then there are technical analysts, who use a basket of complex tools
such as moving averages, buy/sell indicators, and chart patterns to
decipher stock movements. These traders essentially ignore fundamental
data found on the financial statements. Instead, they insist that the
best way to predict short-term trends is to carefully study a firm's
price chart.
Each of these different strategies -- as well as dozens more that I
haven't listed here -- has a unique set of pros and cons. Under the
right circumstances, they can all deliver attractive results.
Nevertheless, I've chosen to disregard most of these approaches and to
instead focus my attention on the same corner of the market that has
made money managers like Warren Buffett, Peter Lynch, and Bill Miller
legendary -- value stocks.
The Case for Value Investing
According to research firm Ibbotson Associates, between 1968 and 2002
value stocks delivered an impressive annual return of +11%, easily
outpacing the +8.8% return of growth stocks -- and with less volatility.
Furthermore, a number of studies have also shown that small companies
tend to outperform large ones over the long haul. With this in mind, I
focus most of my energies on analyzing small- and micro-cap value
stocks.
Value investors can certainly appreciate companies with impressive
growth rates, healthy balance sheets, expanding profit margins, and
other such sought-after credentials. However, true value investors are
also not afraid to dive into stocks with deteriorating fundamentals
either. Why? Because value investors are essentially bargain hunters,
and companies with spotless financial statements seldom trade at
rock-bottom prices. On the other hand, businesses that have been shown
to have a few chinks in the armor will often see that weakness reflected
in their share price. Given the market's tendency to overreact, bad news
often triggers strong selling pressure, and this pressure can quickly
push a company's shares far below their intrinsic value.
In general, I prefer to scour the market for troubled stocks that are
trading at a significant discount to their intrinsic value. For example,
I'd much rather buy a troubled stock that's worth $5 and is trading at
$3, as opposed to purchasing a flawless company valued at $40 and
selling for $45. Obviously, these numbers are entirely hypothetical, but
they do illustrate one of the central themes of value investing -- the
path to riches doesn't involve the search for fantastic companies, but
instead for undervalued ones.
How to Uncover Winning Value Stocks
So, how does one develop a method to uncover stocks that are trading
below their intrinsic value? Unfortunately, no perfect system exists.
There is no road map to follow, and no rule of thumb to use as a
guideline. Even financial ratios, which are virtually indispensable to
the value investor, are by themselves not enough. After all, anyone can
memorize a few simple formulas. Furthermore, financial statistics can
easily be distorted by one-time events or recent transactions that are
unlikely to be duplicated.
None of this is meant to dissuade anyone from value investing -- only to
caution that the process is research-intensive. There are no shortcuts.
The key lies in not just crunching the numbers, but also understanding
what they mean and then drawing the correct conclusions. A successful
value investor will also understand that what lies beneath the numbers
can be equally important, and that qualitative factors such as
management, competitive advantages, brand loyalty, and barriers to entry
should also be weighed.
With all this in mind, in PART II of this article, which I'll publish in
the coming days, I'll bring you a closer look at some of the specific
methodologies that I use to uncover quality value candidates.
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Important Note: The above article
was merely a small excerpt from a recent issue we sent to subscribers of
our premium value investing service -- Margin-of-Safety
Investing. In each issue of that newsletter, editors Nathan
Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted
stocks that should provide investors with a solid margin of safety at
current prices. To receive your copy of our most recent issue of Margin-of-Safety
Investing, as well as other guidance similar to this twice per
month, you'll need to subscribe to this publication. To learn more,
please visit:
https://www.streetauthority.com/subscribe-msi.asp
Thanks for reading!
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Nathan Slaughter
Editor
Half-Priced Stocks, The ETF Authority
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in-depth guidance on today's leading value opportunities, plus educational guidance, please subscribe to
Nathan Slaughter's premium value investing newsletter --
Half-Priced
Stocks |
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Investing Doesn't Get Any Easier Than This |
Stock picker Amy
Calistri's strategy is as simple as investing gets -- just one idea
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