Ignore the doomsayers - shares are still the best place for your money
It may sound perverse but the only way to spot the winners from a given universe of shares is by eliminating the obvious losers. That's Warren Buffett's strategy. He's the greatest, most successful American investor of all time. He always looks at the downside of any prospective investment and, if it looks too risky, he'll walk away, however tempting the upside. Buffett summarises the concept beautifully:"Rule number one of investment is not to lose money. Rule number two is to remember rule number one."
Subscribe to Red Hot Penny Shares Risk-Free now!
At Red Hot Penny Shares, the focus is on finding undervalued shares. If you choose a value investing strategy, then the stock market activity revolves around buying R1 worth of company stocks for 50c. This is the opposite of growth value investing, where you buy R1 worth of stocks in the hope they become R2.If you have a determined view of investing the world is your oysterA great problem with stock markets and the task of investing for your own account is you often lose focus on the reason you started investing in the first place. The greatest test you'll encounter when you start investing is to moderate your expectations. Stock market investing is not a 'get-rich-quick' solution. Instead, it takes patience and plenty of practice to select the right stocks and hold them for long enough to gain the full benefit of your analysis.You need plenty of patience, rigorous discipline and loads of time to succeed. And this requirement is particularly important when embarking on a strategy of value investing.The method of using value as investment criteria is an off-shoot of the fundamental technique. Value investors scrutinise companies with the single goal of calculating the intrinsic value of the company. This means they try to determine a value for each little part of the company after stripping away the smoke screen, static and other market noise due to market and investor sentiment.The secrets of investingThere are a number of secrets to investing. You'll find the value investor often uses fundamental ratios to identify companies for a more detailed investigation. First and foremost, the value investor is concerned with price to earnings ratios (PE) and price-to-book value (PBV). If these ratios are low, then the value investor begins to get interested...
After snooping around a bit more, you, as a value investor, will be helping to discover a high dividend yield and a much underrated share price to boot.
You're looking for an extremely unpopular company – one that appears to be on hard times and has literally fallen from grace! And then, trusting in your thorough analysis and assessment of the company, you buy and wait. You ignore market gyrations around your entry price level – you forget about stop losses and profit target – you simply buy the share and hold it. When the market finally wakes up and values the stock fairly you'll be laughing all the way to the bank.
Often an investor using the value approach will complete a study of a company – but choose not to buy because the trading price of the company is too close to the intrinsic value. He'll simply put this company on his radar and wait for the market overreaction to cause the share to plummet. Then, he'll buy up as much of the stock as possible. Remember, the goal is to purchase stock in the company at absolute bargain basement prices… That's where the concept of ‘value' really kicks in.Here at Red Hot Penny Shares we employ this strategy to try and discover undervalued stocks, concentrating on the AltX and the Small-Cap Index on the JSE. And a quick look at our portfolio confirms that shares are the best place for your money! Start your Risk-Free subscription to Red Hot Penny Shares right now!
The past is not a guide to future performance. Trades in stocks recommended by Red Hot Penny Shares are small company shares. By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances.
