Value investing

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14. Conclusion

• Stick to the principles
  Consider basing your decisions on the relationship between price and value, because that may be the only way to ensure that you buy undervalued shares and sell overvalued ones at the right time. If you find yourself responding to 'noise' - price movements that have nothing to do with a business's fundamentals - and trading frequently, you may have strayed from the path!
• Avoid risk
  Consider screening your shares using the asset test and the earnings test. Avoid shares that don't meet your key criteria. If possible, invest in businesses that you understand.
• Diversification
  Consider aiming for a portfolio of between 10 and 20 companies, and spread them across unrelated industries.
• Holding period
  Consider aiming for an average holding period of three to five years.
• Churning your portfolio
  It will cost you in broker commissions, and you may miss the important buy/sell signals.
• Be realistic
  Following the principles of value investing could increase the chances of you making money in the stock market, but recognise that you may have your fair share of losers.
• Value investment works best when the stock market as a whole is low.
  When it is high, it can be hard to find shares whose price is low compared with their value.

You have now completed the course. To test your knowledge, take the Assessment test.

1. What is value investing? 2. Ben Graham 3. Does value investing suit you? 4. Back in fashion 5. Undervalued assets - introduction 6. Undervalued assets - property companies 7. Debt 8. Earnings 9. Earnings - an example 10. Dividends 11. Ratio of market capitalisation to sales 12. Warren Buffett's principles 13. Why do stocks become undervalued/overvalued? 14. Conclusion

Benjamin Graham

Spreadsheet
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