It seems that often the best and easiest answer to the problem is the one you don’t think of right away.
Such in the case with investing, according to US News.
The secret to successful “value” investing? Quite simple, when you stop to think about it:
“Scour Wall Street for great companies that should dominate their industries for years to come. Then, buy stock in those companies when they're cheap, and wait it out,” US News Contributor John Divine
A "value" stock
is commonly defined as a stock that tends to trade at a lower price relative to it's fundamentals (dividends, earnings, sales, etc.) and thus considered undervalued by a value investor.
US News offers 5 value-investing tips:
- Not all price-earnings ratios are created equal. “When you divide a stock's price by its earnings per share, you get the famed price-earnings ratio,” Divine explains. “There's just one thing: The earnings used to calculate the P/E are past earnings.” Investors, says Kevin Mahn, chief investment officer at Hennion & Walsh, "are not buying into past earnings but rather future, potential earnings of a company." That's why it's important to consider future earnings. But don't think that strategy is infallible, Mahn says, since future earnings are always estimated.
- Look for safety buffers with “economic moats.” Companies with economic moats enjoy competitive advantages letting them earn higher returns than competitors for "multiple economic cycles," Ken Little, managing director of investments at Brandes Investment Partners, told Divine.
- Seek strong free cash flow. “Earnings are important, but they can still be manipulated – legally – via accounting gimmicks to impress investors or minimize taxes. Cash, however, is either there or it isn't. And it holds ultimate transactional power,” Divine says.
- Find stocks with a large margin of safety. "Margin of safety is a concept that addresses the downside risk of an investment," says Michael van Biema, founder and managing principal of van Biema Value Partners.
- Avoid “value” traps. “Steering clear of value traps is probably the most difficult tip for investors to put into practice. A value trap is a stock that, by all appearances, seems to be a value stock, but isn't,” Divine says. “In value traps, underperformance isn't a fluke. The company faces real, long-term challenges.”
To be sure, there are other viable simple investment strategies as well.
CNBC's Jeff Cox, co-author of "The 30-Minute Millionaire" is sharing the tips investors need to know to profit from the market by spending just a half hour a week on their portfolios.
“This is not a get-rich-quick scheme,” he explained to CNBC. “This is a get-rich-smart scheme.”
"The 30-Minute Millionaire," co-authored by CNBC.com Finance Editor Cox and his writing partner Peter Tanous, is a blueprint for a road ahead that looks very different than the one traveled since the bull market began in 2009.
Cox and Tanous, chairman of Lynx Investment Advisory, see a slow-growth world in which investors need to shed short-term thinking and use passive strategies to deliver consistent returns.
Cox said the goal is to avoid having retail investors avoid the hassle, danger and guesswork of picking individual stocks. “Leave stock picking to the smart people, to the pros,” he explained.
“My biggest concern with watching the market over the last seven years or so has been the ‘short-termism’ of investors,” Cox explained. He said most small investors “react to events too easily and to things that don’t matter to their long-term goals.”
Cox doesn’t discourage investors from doing their homework or obtaining information on stocks, but then suggests turn to ETFs or index funds as opposed to picking individual stocks. “You should know your investments completely,” Cox said. “Get the information, stay informed, stay on top of things,” he said. “Keep your perspective in the long term,” he said.
(Newsmax wire services contributed to this report).
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