Value or not to value?

15th Aug '20 by Adrian Charles Dewey

5 comments 514 reads

I have just been reading Phillip Oakley's 13 page article (Alpha screens yesterday - Inv. Chronicle 14th August) in which he convincingly - to my mind at least - says that Value investing can become a value trap! I have used this filter (Value/Momentum stocks) as a guide to stock selection.

Not sure what to do now! Would it be better to use your Quality/Momentum guide instead and not to place too much importance on value (or as simplistically implied, bargain pricing)?

I have also tried researching Closed End Investment Trusts - it seems you sometimes give details of your in-depth findings not others.

Also ex-divi dates and divi payment dates would be very welcome - saving me toggling back and forth to the HL site.

I am a newbie and ask would the dividend % age quoted on any given FUND be before or after charges eg. a spot yield shown as (say) 6% be more like 4% after deducting the HL and Fund on-going `charges performance fees etc. At least HL are very open about a given fund's total fees.

finally is there a recent down load which may cover some of these issues?

Stockopedia is by far the best stock assisting site I have come across. I also subscribe to Simply Wall Street And The Motley fool. but they at best only offer another check. Indeed I wonder how the "graphically pretty" SWS can be kept up-to-date and summaries such as "6 star dividend payer" really stack up - haven't come across any three or four or five star dividend payers yet!

KR, ADRIAN DEWEY

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MiserableJacktPotato

15th Aug '20

All the styles can become traps - if there was a sure fire style we'd all be on it :) You can do everything right, run the perfect screen and still your share pick might go backwards - all you're trying to do is find more winners than losers and cut your losers early whilst letting your winners run (maybe even average up if you're a follower of NT).

Metatron

16th Aug '20

With any 'value share' ask yourself if you could visualise it being subject of a takeover bid and does it pay a dividend whilst you buy and stick it away?

IronPyrites

Hi Adrian

I guess I count myself mainly as a value investor having read a number of books which help the reader to define the style of investing that best suits their personality.

Excellent Investing by Mark Simpson being a good example of such a book.

Over the years I have dabbled with other strategies but feel most comfortable with the principles of value investing.

Generally I will look for stocks that appear unloved and undervalued according to the standard fundamental metrics such as PE, PTBV, undervalued freehold, above average dividend etc

The risk then is that they remain unloved and undervalued and become a ‘value trap’.

The typical holding time for a value pick could well be up to 1-2 years so there is considerable opportunity costs to remaining invested in a stock that is going nowhere soon.

A low PTBV and low debt or net cash will offer some protection against share downside and to mitigate for the time spent waiting for a stock to re-rate it is important to look for a decent sustainable (well covered) yield.

It is then worth considering what might be a value ‘outer’ and whether that is present.

An above average sustainable yield could also be considered as a value outer as it reverts to the mean with time through share price rises.

Other outers might be a rising forecast EPS (but be wary of EPS rises engineered by acquisitions).

Undervalued freehold or an opportunity to sell freehold well above book price. Directors being shareholders and particularly if they are buying in reasonable quantities in the market place. The likelihood of an expanding market and order book. And so on.

One or more of these will make a re-rating more likely and a decent dividend will help to compensate for the time it takes.

Value investing is a contrarian style which does require a certain level of research and is not suited to everyone.

I hope that helps.

Regards

Iron

ken mitchell

Adrian.

The quoted dividend yield is the yield investors receive. I.e there are no deductions for charges. Any charges are taken out of the Investment Trust share price, so are not really noticed.

As a beginner it’s a very good idea to search out Investment Trusts as they are a great way to invest all round the world, and (obviously) far less risky than going for single foreign shares. Note that the UK is about the worst performing major market, so there’s a strong case for investing elsewhere as well as here.

This site is excellent:-

https://www.theaic.co.uk/aic/find-compare-investment-companies

17th Aug '20

As indicated by ken mitchell Investment Trusts are an excellent way to invest outside the UK as well as in UK equities.

Apart from the aic comparison site it is worth looking at the moneymakers site.

https://money-makers.co/money-maker-podcasts/

There is a free download of the IT handbook and a weekly podcast covering a round up of the week’s IT news.

As it is the holiday season last weeks podcast was the first of two primers on ITs and is well worth listening to to get a full picture of what an IT is and does. It covers the concept of discounts and premiums to NAV and explains how IT have the capacity to maintain dividends by using saved revenue and in some cases from capital. Something open ended funds can’t do.

A number of ITs have been aptly named ‘dividend heros’ maintaining a dividend for decades and through previous bear markets. For instance the City of London IT has now maintained a dividend for 54 consecutive years.

This is the link to the first primer podcast. The second will be next week.

https://money-makers.co/weekly-investment-trust-podcast-19/

If you want convincing about ITs listen to Reg Hoare. A clear advocate for ITs and interviewed by Tamzin of piworld here back in May:

https://www.piworld.co.uk/2020/05/22/piworld-webinar-investment-trusts-an-investing-panacea-for-pandemics-by-reg-hoare/

Value or not to value?

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Adrian Charles Dewey

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