Value Investing

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Value Investing

• Roy Ward
• Research Analyst,
• Cabot Benjamin Graham Value Investor
• roy_at_cabot.net

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• What is Value Investing?
• Allocate growth and value stocks in your
  portfolio
• Using the Benjamin Graham approach
• Using the Warren Buffett approach
• Using the simplest and best approach
• Reducing risk
• How to outperform the stock market indexes by a
  wide margin

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What is Value Investing?

• Three examples
• Understand Different Approaches
• Use All Three?

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Portfolio Allocation

• Diversify with value and growth stocks 50/50
• Value portion should be high-quality,
  conservative stocks and medium risk stocks
• Every portfolio should contain conservative core
  stocks for long-term holding
• Diversify across various industry sectors
• Invest equal dollar amounts in each company

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Ben Graham Approach

• 1. P/E less than 9.0
• 2. P/BV less than 1.20
• 3. Dividend greater than zer.
• 4. Long Term Debt/Current Assets less than 1.10
• 5. Current Assets/Current Liabilities greater
  than 1.50
• 6. No Earnings Deficits last 5 Years
• 7. SP Quality Rank B or higher
• Results Medium risk stocks with 2 to 3 dividend
  yields, typically low growth or turn-around
  situations.
• Corning (GLW), Prudential (PRU), Xerox (XRX)

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Warren Buffett Approach

• Estimate intrinsic value of company to determine
  optimum buy price and sell price
• Invest in high-quality companies with strong
  balance sheets
• Choose companies with steady earnings growth
  during the past decade
• Favor companies paying dividends
• Results Low risk stocks with 2 to 3 dividends,
  typically moderate growth.
• Cognizant Technologies (CTSH), Qualcomm (QCOM),
  Tupperware (TUP)

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Simplified Value Approach

• 1. Use Standard Poors Ben Graham did!
• 2. Find stocks with SP Stars Ratings of 4 or 5
• 3. And SP Fair Value Ratings of 4 or 5
• 4. SP Quality Ratings of A, A, or A-
  occasionally B
• 5. Read about company outlook on company website
  and research reports
• 6. Choose stocks from various industry sectors

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Risk

• 1. Reduce risk when the stock market is high
• 2 Increase risk when the stock market is low
• 3. Current risk level is 55 ultra-low risk
  stocks (in place of bonds) and 45 low-to-medium
  risk stocks
• 4. Be more aggressive when you are young and less
  aggressive when you approach retirement

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How to Beat the Market!

• 1. Establish a system
• 2. Write down the details of your system step by
  step
• 3. Follow your system and stick with it through
  good times and bad times
• 4. Have fun but keep in mind this is your
  hard-earned money that you are going to depend on
  when retired

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Questions?

• Thank you for your participation!
• Now, lets go out and make lots of money!

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