Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimisim is the best time to sell.
Sir John Templeton
-Forecast Yield 7.71%
- Forward Cover 3.02
-Forward PE 4.3
-Forecast Yield 7.04%
- Forward Cover 1.82
-Forward PE 7.6
United Utilities (LON:UU.)
-Forecast Yield 6.58%
- Forward Cover 1.7
-Forward PE 8.97
Scottish & Southern Energy (LON:SSE)
-Forecast Yield 6.5%
- Forward Cover 1.49
-Forward PE 10.3
Severn Trent (LON:SVT)
-Forecast Yield 6.29%
- Forward Cover 1.42
-Forward PE 11.21
Royal Dutch Shell (LON:RDSA)
-Forecast Yield 6.25%
- Forward Cover 1.81
-Forward PE 8.86
National Grid (LON:NG.)
-Forecast Yield 6.23%
- Forward Cover 1.55
-Forward PE 10.38
Vodafone Group (LON:VOD)
-Forecast Yield 6.01%
- Forward Cover 1.91
-Forward PE 8.73
British American Tobacco (LON:BATS)
-Forecast Yield 5.58%
- Forward Cover 1.54
-Forward PE 11.66
-Forecast Yield 5.53%
- Forward Cover 1.86
-Forward PE 9.69
-Forecast Yield 5.37%
- Forward Cover 2.58
-Forward PE 7.22
Investment Greats: Ben Graham
Graham's approach is based on the principle that, while markets are not good at pricing investments, over the long term the true value of businesses will be revealed. "In the short run, the market is a voting machine but in the long run, it is a weighing machine".
'Mr Market', as he described the emotional and irrational marketplace, sets share prices that you may not agree with, based on your fundamental analysis of a share's value. When Mr Market's price is sufficiently below your assessment of the share's value, you have the opportunity to buy with what he referred to as a 'margin of safety'.
Allowing yourself this margin of safety is in stark contrast to the 'greater fool theory' (note the lowercase 'f'), whereby people buy shares regardless of valuation in the hope of finding someone to buy them later at an even higher price. It's all about risk and reward.
Risk can also be mitigated to an extent by buying a portfolio of shares, so that even if some companies go bust, the overall return may still beat the market.
In the mid 1970s, Graham and his colleague, James B. Rea, refined his ideas into ten criteria for selecting a portfolio:
1) earnings yield at least twice the AAA bond yield;
2) price/earnings ratio below 40% of the highest P/E ratio the stock had over the previous five years;
3) dividend yield of at least two-thirds the AAA bond yield;
4) share price below two-thirds of tangible book value per share;
5) share price below two-thirds of net current asset value per share;
6) total debt less than tangible book value;
7) current ratio greater than two;
8) total debt less than twice net current asset value;
9) earnings growth over the previous ten years of at least 7% per annum; and
10) a maximum of two annual earnings falls of 5% or more over the previous ten years.
If you want to trawl for shares meeting these criteria, ADVFN has filters that facilitate this; you can see the results of a recent search I did in this article. Finding shares that tick all these boxes is quite difficult, but tests 1), 3), 5), and 6) were deemed to be the most important.
The following were considered sell signals:
1) share price up more than 50% since buying;
2) share held for more than two years;
3) company stopped paying dividends; or
4) profits fell enough to make it overpriced by 50% or more on the earnings yield criterion.
Books to Read
Security Analysis - Benjamin Graham (HEAVY READING This is the old testament from the 'Dean of Wallstreet')
The Intelligent Investor - Benjamin Graham (HEAVY READING The New Testament)
Value Investing Made Easy - Janet Lowe (Easy read to see if you agree with the strategy)
The Rediscovered Benjamin Graham - Janet Lowe (Easy read with some late interviews that were interesting. I like this book.)
The Warren Buffett Way - Robert G. Hagstrom (Easy read and interesting examples of some of WB's great investments)
Buffettology - Mary Buffett and David Clark (An interesting slant on things. Easy Read)
The Essays of Warren Buffett - Warren E. Buffett (From the annual reports of his company Berkshire Hatherway. Fascinating).
Common Stocks and Uncommon Profits - Phillip A. Fisher (Regarded as an investment classic. Fisher was one of the greatest growth stock investors. Buffett says he's 85 % Graham and 15 % Fisher, which is a real compliment).
One Up On Wall Street - Peter Lynch (Peter has a gift for making it all sound simple. I think this book extols the benefits of understanding brands).
The Real Warren Buffett - James O'Loughlin (Buffett is so much more than an investor. What he has created in the management structure and culture of Berkshire Hathaway is truly unique).
The Smartest Guys In The Room - Bethany McLean and Peter Elkind (How it can all go wrong. The ENRON scandle. (A riveting read. You couldn't make this up).
Accounts: Interpreting Company Reports and Accounts - Geoffrey Holmes and Alan Sugden
The Great Crash 1929 - John Kenneth Galbraith (Easy read. I think it's important to understand bubbles, crashes and investment history statistics. It may stop you being panicked out of a sound investment one day or help you avoid investing during the later stages of a bubble cycle).
The BZW Equity-Gilt Study (Facts and figures going back to 1918 on Equities, Gilts and the Cost of Living Index. Great for looking at corelations).
The Death of Inflation - Roger Bootle (Bootle saw the change coming 10 years ago, while inflation was still raging. He's a genius economist imo).
A Very English Deceit - Malcolm Balen (The South Sea Bubble and an excellent account of how London's financial power house started in the early 1700's. Insurance companies and share traders in coffee shops, no less).
20 years of dividends and still going strong
Here's its pick of 20 UK companies that have at least held their annual dividends since 1990, together with their forecast payouts for financial years 2010, 2011 and 2012:
|Vodafone Group||Mobile Telecoms||180||8.3||8.9||9.5|
|Royal Dutch Shell||Oil & Gas Producers||2,145||107.2||111.2||118.0|
|Serco Group||Support Services||553||7.2||8.0||8.8|
|Meggitt||Aerospace & Def.||349||8.6||9.2||10.0|
|Cobham||Aerospace & Def.||209||6.0||6.6||7.3|
|PZ Cussons||Personal Goods||360||5.9||6.4||6.9|
|Close Brothers Group||General Financials||858||39.0||39.0||39.0|
|Brown N Group||General Retailers||280||10.8||12.3||13.5|
|Rathbone Brothers||General Financials||1,150||42.0||42.0||42.0|
|Daejan Holdings||Real Estate||2,781||74.0||74.0||74.0|
Filed Under: Income Investing,