What Are The Value Investing Strategies
Value investing strategies are mentioned in many investment books and internet blogs. The hard truth is that self learning through books will need a strong discipline to progress and these investing concepts can be quite cluttered especially for a novice value investor to fully appreciate them. On the other hand, they are also many other retail stock investors who love to speculate based on market rumors or sophisticated investors who rely too much on technical analysis (TA) to lose even more money. Thus, it is important to apply these value investing strategies correctly.
Below is a common list of indicators for consideration.
- Market Capitalization
Market capitalization is one of the easiest methods to screen for the best stocks. It is one parameter that factors-in almost everything about a stock e.g. to have a quick overview of financial health, brand image and managements efficiency. However, stocks with high market capitalization may not necessarily a good buy because it cannot ensure correct valuation.
- Price Earning Growth (PEG)
You make profits when you buy good stocks at the right price. This will ensure good returns at a later stage. PEG ratio is often used by value investors to evaluate if a stock is priced correctly or not. Stocks having PEG ratio (based on EPS growth of last 5 years) of less than 1 can be considered undervalued.
- Dividend Yield
Though there is no thumb rule of dividend yield that will indicate undervalued stocks. But we can consider higher the better. High market capitalization stocks which also pays high dividend is considered a good value indicator. Typically, good REITS will provide quarterly dividends which amount to a decent yearly dividend yield of 7-8%.
- 52Week Price Change
It can be a much safer investing if one includes technical analysis. Fundamentally strong stocks whose price have depreciated in last one year can be considered for a good buy.
- EPS Growth Rate
There is less business fundamentals as reliable as EPS growth rate. If investors can only concentrate on EPS growth of best stocks, this may not holistic enough to assess a particular stock. It is not easy for companies to maintain the EPS growth rate over a long term. EPS growth becomes even more remarkable if a high market cap stock can display it for an extended period of time (say 5 to 10 years).
- Debt Equity Ratio
A company which is relying too much on debt to fund is working capital is not a good company. High debt levels certainly effects the profit margin of companies. But how does one ascertain if a company has too much debts which will pose a risk to their business operations? In order to know this, one can look into a financial ratio called debt equity ratio. The lower is the debt/equity ratio the better. Ideal debt/equity ratio will be zero. If you are able to find such companies with zero debt, they may be considered in your shopping list if all other criteria are met. One example is Apple Inc.
Learn Value Investing Strategies Systematically
It is quite easy to uncover a long list of financial ratios that can be used to assess how valuable or how good a company can be. Likewise, the work of analysing the financial statement reports of companies can be also quite time consuming and confusing. If you are not accounting trained, you are likely to get lost half way through and given it up after some time.
Learning Value investing strategies from an investment book or from internet can be a different learning experience as compared learning from a Value Investing guru. Regardless of who are the value investing gurus, there should be a proven systematic approach used by them to identify a undervalued stock to invest or knowing when to sell a stock to exit the market profitably.
If you are ready to embark the journey of value investing in Singapore, fill up the top right form to register for Sean Seah’s free value investing seminar. You will be amazed like many thousands of Singaporeans did in the past. Register now!