“Cheap” value stocks are beating the stock market this year… .

Summary:

  1. Value (and High Dividend) stocks are beating Growth this year.
  2. Unprofitable stocks, and IPOs, are generally best avoided
  3. The largest US stocks are often best avoided
  4. Expensive PE stocks tend to do worse in the long run
  5. Value is even better when combined with Quality

Podcast this week:
Warren Buffett: the investing “GOAT” (Greatest Of All Time)

  • Does successful investing always start from childhood?
  • Did Warren Buffett succeed due to his family background connections?
  • What investment philosophy has Mr Buffett used? Has it changed?
  • What are Mr Buffett’s recent successes and failures?
  • How could I invest like Warren Buffett?

Recent monthly report:
Investment Strategy Focus: September 2022

Buying “cheap” and profitable stocks is a winning strategy in the long run

Many famed “value” investors investors such as Benjamin Graham have made a career out of the stock selection strategy of buying and holding stocks that are judged to be cheap on one or a number of valuation measures, such as:

  • Price/book value - comparing the stock market value of a company to its accounting “book” value;
  • Price/earnings (P/E) - comparing a company’s market value to its earnings (after-tax profits);
  • Price/sales - comparing a company’s market value to its annual sales (also called turnover)
  • Enterprise value (market value + value of debt) / Earnings Before Interest and Taxes (EBIT): like the P/E measure above, but takes account of a company’s debt as well as shares.

There are other valuation measures besides, but this captures the most noted measures investors typically use.

(By the way, if you are interested in knowing more about which of these works over the long run and why, and how you can even combine them, I recommend Jim O’Shaughnessy’s book “What Works on Wall Street”).

These value-based strategies of trying to buy a company for less than its “intrinsic value” and holding it until the share price more accurately reflects the company’s underlying true value have been outperforming strategies for decades, based largely on the original work of US professors Eugene Fama and Kenneth French.

But over the last 10+ years, these value strategies seem to have lost their mojo, with growth-based and momentum-based strategies typically doing better, particularly in the US where the technology sector has led the way.

However, over 2022 to…

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