Value Investing

When investing for value you must remember that there are two sides to the coin. When you buy an asset because it is “undervalued”, you must sell it when it becomes “properly’ valued. The reason is that you did not buy the asset for its future prospects. You bought it because it was relatively cheap. When it is no longer cheap, you do not have a reason to hold on to it.

Value Stocks

Many books were written on the subject. Different people have different views on valuation. I like simple. The reason we pick stocks is that they are easy to buy and easy to sell. I don not believe that complicated models produce much better results than simple. Here is a simple screen:

• Market value more than $2.0 Billion
• P. E. greater than Zero (only companies showing a net profit)
• P.E. less than 5 year average P.E of the stock
• P.E. less than market average P.E. ( nowadays at 18)
• Dividend yield above market average dividend yield ( now at 2.5%)
• price close above 50 day moving average ( to avoid companies in free fall).

These days (September 2016) you will not find many stocks that meet these criteria. The reason is that the market is not cheap. At these extremely low interest rates, investors are paying higher values for companies than they have in the past. If you are looking for value, you must be patient until the market comes to you.