Share this page:
Stay connected:
Welcome to the Citywire Money Forums, where members share investment ideas and discuss everything to do with their money.

You'll need to log in or set up an account to start new discussions or reply to existing ones. See you inside!

Notification

Icon
Error

Selecting an Investment: 1 to 100
Liam Francis
Posted: 12 April 2017 15:14:08(UTC)
#1

Joined: 12/04/2017(UTC)
Posts: 1

Was thanked: 2 time(s) in 1 post(s)
Hi,

I am a value investor that is relatively new to the scene.
I am currently using a share screener (refined by P/E and a few other simple ratios) to narrow my results across UK market.

After this process I tend to be left with 15 to 20 companies that fit within the parameters I am looking at.
However, it is the next step I struggle with and was hoping for some advise to improve my strategy.

I start by further narrowing the ratios and including some more.
At this stage the ratios/indicators I am using are as followed;

P/E, PEG, P/S, P/B, Dividend Yield, ROE, ROA, Profit Margin over 5+ years, Current Ratio, D/E

What other quantitive and/or qualitative factors should I pay attention to before making an investment decision?
More interestingly perhaps; what do you deem to be an imperative in the analytics stages of investing in a stock....

Thank you everyone.
Liam

(Please bounce around any ideas in relation to your stock picking process, and also provide justification!)
2 users thanked Liam Francis for this post.
Dian on 23/04/2017(UTC), Guest on 24/04/2017(UTC)
David 111
Posted: 23 April 2017 08:21:19(UTC)
#2

Joined: 09/07/2010(UTC)
Posts: 129

Thanks: 83 times
Was thanked: 70 time(s) in 45 post(s)
You could subscribe to Stockopedia (I do), although you will have to pay an annual subscription.

I also recommend you read "The Defensive Value Investor" by John Kingham (available from, inter alia, Amazon) and visit his web site: https://www.ukvalueinvestor.com/about.

Micawber
Posted: 23 April 2017 09:51:16(UTC)
#3

Joined: 27/01/2013(UTC)
Posts: 1,562

Thanks: 629 times
Was thanked: 2180 time(s) in 858 post(s)
Liam Francis;45751 wrote:
......
What other quantitive and/or qualitative factors should I pay attention to before making an investment decision?
More interestingly perhaps; what do you deem to be an imperative in the analytics stages of investing in a stock....


I'm neither a value nor a growth nor a momentum investor but look unconstrainedly for cases that I think will do well - and they can include all those kinds of stock.or trust or ETF.

I will always try to make some assessment of forward macro and sectoral factors. This can't be accurately quantifiable in most cases but I need to have reasonable confidence. You are unlikely to find me taking a contrarian position just for the heck of it.

I look at the past five years performance relative to some sectoral comparison (such as an ETF) and whether the longer term trend is up or down. This excludes (for me) companies that are clearly in long term decline, unless there is a very good reason to suppose a real turnaround is not only hoped for but actually occurring.

Balance within the pf allocation is relevant.

I don't like to exclude any information at all. Having focused on macro and sector and found some candidate stocks, I would say my approach is based on finding reasons why not to buy them. It is always easy to find justifications for buying a stock, but my list of avoidance criteria is pretty long. Don't ask. I sometimes break my own accumulated 'rules' (and usually the ensuing loss reinforces them).
2 users thanked Micawber for this post.
Sara G on 23/04/2017(UTC), Guest on 24/04/2017(UTC)
David 111
Posted: 23 April 2017 10:08:54(UTC)
#4

Joined: 09/07/2010(UTC)
Posts: 129

Thanks: 83 times
Was thanked: 70 time(s) in 45 post(s)
Micawber writes "It is always easy to find justifications for buying a stock". True. What is far less easy is finding the right time to sell.
Big boy
Posted: 23 April 2017 11:25:32(UTC)
#5

Joined: 20/01/2015(UTC)
Posts: 177

Thanks: 4 times
Was thanked: 170 time(s) in 93 post(s)
The best value is buying 5/10 Investment Trusts standing on highest discounts. They must all have NAVs quoted daily. This will give you a massive spread of investments which will tend to be relatively low. Sell when the discount lowers which tends to be on crest of the wave and reinvest into a higher discount trust. Discounts have lowered over last few months as markets get overbought their for I would keep at least 30/40% cash. Don't worry about no return on cash as when markets fall you will not lose money which can be very painful. 1/4% return is better than losing 10/20%. capital.
1 user thanked Big boy for this post.
David 111 on 23/04/2017(UTC)
Mickey
Posted: 23 April 2017 12:00:34(UTC)
#7

Joined: 21/06/2010(UTC)
Posts: 343

Thanks: 859 times
Was thanked: 303 time(s) in 155 post(s)
Liam Francis;45751 wrote:
What other quantitive and/or qualitative factors should I pay attention to before making an investment decision?

Having an awareness of current trends, what people are buying, what businesses need etc are all things to bear in mind. There's no point investing in something solely based on historical performance.
chubby bunny
Posted: 23 April 2017 12:01:46(UTC)
#6

Joined: 31/10/2016(UTC)
Posts: 134

Thanks: 47 times
Was thanked: 171 time(s) in 85 post(s)
Big boy;46111 wrote:
The best value is buying 5/10 Investment Trusts standing on highest discounts. They must all have NAVs quoted daily. This will give you a massive spread of investments which will tend to be relatively low. Sell when the discount lowers which tends to be on crest of the wave and reinvest into a higher discount trust. Discounts have lowered over last few months as markets get overbought their for I would keep at least 30/40% cash. Don't worry about no return on cash as when markets fall you will not lose money which can be very painful. 1/4% return is better than losing 10/20%. capital.


How much does a discount have to narrow for you to sell?
Big boy
Posted: 23 April 2017 12:39:52(UTC)
#8

Joined: 20/01/2015(UTC)
Posts: 177

Thanks: 4 times
Was thanked: 170 time(s) in 93 post(s)
Buy at 20/30% and sell at 15% ......remember always leave a bit for someone else and don't be greedy. This will lead to outperforming others...This method means no story telling and is all about behaviour rather than looking at the past and forecasting the future. Tend to buy conventional trusts unless you understand some of the structures and gearing effects.
2 users thanked Big boy for this post.
David 111 on 23/04/2017(UTC), IanL on 23/04/2017(UTC)
King Lodos
Posted: 23 April 2017 15:31:11(UTC)
#10

Joined: 05/01/2016(UTC)
Posts: 1,741

Thanks: 290 times
Was thanked: 2292 time(s) in 946 post(s)
I'd suggest if your strategy is just to buy on Value parameters, find a Value ETF or just buy a Recovery fund (R&M Recovery?) because that's what they're doing, and it will save you a lot of dealing fees.

I'd also suggest there's not necessarily any edge in doing that .. The markets knows all these figures, and has them all priced in against more abstract concepts like risk and future cash flows .. What's cheap is usually cheap for a reason .. At an extreme, you can buy great Russian companies on P/Es below 6, and PEG Ratios around 0.3 .. That's the level I become interested, because it might be that fear's run slightly too far.

But I wouldn't have my whole portfolio chasing that strategy .. Some of the most profitable stocks in recent times have been things like Amazon, making 1,000s of % on P/Es over 2-300 ... Really I'd suggest you stick to inefficient markets, like AIM, for stock picking, but you do need expertise in risk management (diversification and liquidity) if you go there .. Greenblatt's The Little Book That Beats The Market is worth a read – Return on Capital is really useful to consider for things you plan to hold onto .. Flipping Small-Caps on low valuations takes a lot of trading skill too.
1 user thanked King Lodos for this post.
Sara G on 23/04/2017(UTC)
Sara G
Posted: 23 April 2017 15:48:15(UTC)
#11

Joined: 07/05/2015(UTC)
Posts: 454

Thanks: 677 times
Was thanked: 706 time(s) in 290 post(s)
King Lodos;46128 wrote:
I'd suggest if your strategy is just to buy on Value parameters, find a Value ETF or just buy a Recovery fund (R&M Recovery?) because that's what they're doing, and it will save you a lot of dealing fees.


I like BTEM for that reason - an IT on a discount of around 11% that specialises in buying undervalued assets, such as Symphony International Holdings, currently on a 34% discount. They also have access to holding companies not available to most investors.
2 users thanked Sara G for this post.
King Lodos on 23/04/2017(UTC), c brown on 23/04/2017(UTC)
Big boy
Posted: 23 April 2017 18:50:01(UTC)
#12

Joined: 20/01/2015(UTC)
Posts: 177

Thanks: 4 times
Was thanked: 170 time(s) in 93 post(s)
The underlying holdings are stocks you are paying full price via Unit Trusts etc and I would not call them value plays. The Trusts are value plays not the underlying stocks.
The trusts could hold Amazon etc but I am buying them on a big discount to you.... Using this system I outperformed most of the players in the market place over a few decades.
This method placed me in the top few % in the International/Global and Far East sectors in both bull and bear markets. It is very simple but very hard for people to understand that's why it worked.
2 users thanked Big boy for this post.
Sara G on 23/04/2017(UTC), Dian on 23/04/2017(UTC)
Sara G
Posted: 23 April 2017 19:13:02(UTC)
#13

Joined: 07/05/2015(UTC)
Posts: 454

Thanks: 677 times
Was thanked: 706 time(s) in 290 post(s)
Big boy;46133 wrote:
The underlying holdings are stocks you are paying full price via Unit Trusts etc and I would not call them value plays. The Trusts are value plays not the underlying stocks.
The trusts could hold Amazon etc but I am buying them on a big discount to you.... Using this system I outperformed most of the players in the market place over a few decades.
This method placed me in the top few % in the International/Global and Far East sectors in both bull and bear markets. It is very simple but very hard for people to understand that's why it worked.



Most of the best strategies are often the simplest... I think people understand it, but possibly they lack the discipline... MNL met your criteria a while back - top quality holdings in an IT on a 20-30% discount. It has since narrowed to below 10%, so the correct thing to do under your system would be to have sold by now, but I can't bring myself to - which I may well regret at some point.
3 users thanked Sara G for this post.
Keith Hilton on 23/04/2017(UTC), c brown on 23/04/2017(UTC), Guest on 24/04/2017(UTC)
Big boy
Posted: 23 April 2017 19:24:30(UTC)
#15

Joined: 20/01/2015(UTC)
Posts: 177

Thanks: 4 times
Was thanked: 170 time(s) in 93 post(s)
Well done Sara G ...you have got it but you must sell now and buy something else on a big discount. Don't be greedy and leave a little for someone else. You will make more money than any other theories that you will read about.

1 user thanked Big boy for this post.
Sara G on 23/04/2017(UTC)
Sara G
Posted: 23 April 2017 20:17:57(UTC)
#17

Joined: 07/05/2015(UTC)
Posts: 454

Thanks: 677 times
Was thanked: 706 time(s) in 290 post(s)
Speaking of ITs on good discounts, Artemis Alpha Trust looks interesting - 21% discount and one of the managers just made a sizeable purchase. And OIG is on last week's Z-scores, also on a 21% discount.
2 users thanked Sara G for this post.
c brown on 23/04/2017(UTC), Jeff Liddiard on 24/04/2017(UTC)
tom_b
Posted: 23 April 2017 20:38:32(UTC)
#18

Joined: 24/03/2016(UTC)
Posts: 31

Thanks: 55 times
Was thanked: 20 time(s) in 12 post(s)
Liam - I've found Terry Smith's approach compelling, particularly the focus on ROC, and thinking about quality ahead of price.

https://www.fundsmith.co...-warning-signs-at-tesco

https://www.youtube.com/watch?v=4qNZa-77YXY

As the saying goes - better to have a great company at a good price, than a good company at a great price.
Big boy
Posted: 23 April 2017 21:11:32(UTC)
#19

Joined: 20/01/2015(UTC)
Posts: 177

Thanks: 4 times
Was thanked: 170 time(s) in 93 post(s)
Sara G......first check the Trust has daily NAV then work out discount on current offer price and NAV. Likewise sell when discount below 15% it is the bid price/NAV. You can then rank your selections and buy those on biggest discount.
Forget the idea about buying a good co. etc. WPT bought good shares and everyone paid a premium. They now sell at discount of 6% and no one is tipping them..Wait you will be able to buy on much bigger discount in due course. Remember it is better to have a great company at a big discount. I am away for a few weeks but happy investing.
1 user thanked Big boy for this post.
Sara G on 23/04/2017(UTC)
MAK
Posted: 23 April 2017 21:40:24(UTC)
#9

Joined: 25/04/2015(UTC)
Posts: 61

Thanks: 83 times
Was thanked: 15 time(s) in 10 post(s)
Big boy;46116 wrote:
Buy at 20/30% and sell at 15% .


How about your thoughts on the trusts respective Z scores?

Perhaps buy at less than -2 and sell at greater than 2?

Do you also look at any of the other parameters ,such as 200 day MA?

Thanks


Dian
Posted: 23 April 2017 22:47:43(UTC)
#21

Joined: 09/10/2016(UTC)
Posts: 196

Thanks: 146 times
Was thanked: 62 time(s) in 48 post(s)
For me everyday there is something to learn. Making mistakes in stock market is very common. It is unavoidable. However, there are abundant opportunities for savvy investors who can do good research on the industry or companies that they like. I also like following.

Quote:
Liam Francis Wrote

P/E, PEG, P/S, P/B, Dividend Yield, ROE, ROA, Profit Margin over 5+ years, Current Ratio, D/E


I will add few more: Future Outlook at least for five years, mega trends and business model and so on.

How about low debt or debt free and cash rich great value companies having high ROE? In case of growth plays, they should have value. If a company has debt they should be able to reduce debt over time by expanding their businesses.

It is worth reading following facts.

Quote:
Micawber Wrote:

Having focused on macro and sector and found some candidate stocks, I would say my approach is based on finding reasons why not to buy them

Quote:
David 111 Wrote:

Micawber writes "It is always easy to find justifications for buying a stock". True. What is far less easy is finding the right time to sell.


Quote:
Mickey Wrote:

There's no point investing in something solely based on historical performance.

Quote:
Kind Lodos Wrote:

Really I'd suggest you stick to inefficient markets.

Greenblatt's The Little Book That Beats The Market is worth a read – Return on Capital is really useful to consider for things you plan to hold onto .


Quote:
Sara G Wrote:

Most of the best strategies are often the simplest... I think people understand it, but possibly they lack the discipline

Quote:
Big Boy wrote:

Remember always leave a bit for someone else and don't be greedy.
The underlying holdings are stocks you are paying full price via Unit Trusts etc and I would not call them value plays. I am buying them on a big discount to you.... Using this system I outperformed most of the players in the market place over a few decades. This method placed me in the top few % in the International/Global and Far East sectors in both bull and bear markets. It is very simple but very hard for people to understand that's why it worked.

Remember it is better to have a great company at a big discount


Quote:
Tomb-b Wrote:

As the saying goes - better to have a great company at a good price, than a good company at a great price.
King Lodos
Posted: 24 April 2017 00:32:11(UTC)
#20

Joined: 05/01/2016(UTC)
Posts: 1,741

Thanks: 290 times
Was thanked: 2292 time(s) in 946 post(s)
Big boy;46139 wrote:
Sara G......first check the Trust has daily NAV then work out discount on current offer price and NAV. Likewise sell when discount below 15% it is the bid price/NAV. You can then rank your selections and buy those on biggest discount.
Forget the idea about buying a good co. etc. WPT bought good shares and everyone paid a premium. They now sell at discount of 6% and no one is tipping them..Wait you will be able to buy on much bigger discount in due course. Remember it is better to have a great company at a big discount. I am away for a few weeks but happy investing.


Just looked up some research on this – knowing it to be a strategy the likes of Malkiel have mentioned.

Exploiting Closed-End Fund Discounts: The Market May Be Much More Inefficient than You Thought

Evidence on the Mean-Reverting Tendencies of Closed-End Fund Discounts

Mean-reversion in closed-end fund discount: evidence from half-life

Latter two studies behind paywalls, but there may be free versions floating around .. Conclusion seems to be that mean reversion typically occurs over periods of around 14 months – and most reliably in Fixed Income – but almost only when the NAV's rising (i.e. the asset class is doing well).

So if you bought an equity fund on a decent discount before a 5 year bear market, you'd be much less likely to see mean reversion in the fund discount .. Presumably in a risk-off environment, you might get compounded losses due to falls in NAV and discount (as Private Equity trusts did – and which they still haven't recovered from).

And that might be enough to call this premium a risk-factor (rather than a free lunch) – that you're not just betting on Stocks, but betting on the attractiveness of Stocks as an investment too; possibly also the ability of active managers.

7 users thanked King Lodos for this post.
Dian on 24/04/2017(UTC), David 111 on 24/04/2017(UTC), Sara G on 24/04/2017(UTC), tom_b on 24/04/2017(UTC), jvl on 24/04/2017(UTC), Guest on 24/04/2017(UTC), Abstract Artist on 25/04/2017(UTC)
tom_b
Posted: 24 April 2017 08:42:49(UTC)
#22

Joined: 24/03/2016(UTC)
Posts: 31

Thanks: 55 times
Was thanked: 20 time(s) in 12 post(s)
Some good talks on value investing on this YouTube channel

https://www.youtube.com/...CVJalJNQWimC2zWrIHR_bSQ

E.g.:

Seth Klarman - https://www.youtube.com/watch?v=VmQNya2I-9I
Joel Greenblatt - https://www.youtube.com/watch?v=Zg5kptoWceU
3 users thanked tom_b for this post.
Dian on 24/04/2017(UTC), Mickey on 24/04/2017(UTC), Abstract Artist on 25/04/2017(UTC)
2 Pages12Next page
+ Reply to discussion

Markets

Other markets