It is no surprise when people talk about investing – most people who earn decent salaries and are looking forward to big changes in the future try their hand at investments. Today, there are several varied options for good investments, depending upon the requirement and flexibility of the person. However, before stepping into any kind of investment option, it is vital to know the basics about good investment, give time to study and research about it and most importantly learn a few secrets that most long-term investors have been following through the ages.
Although today, most of the information that one needs about investment is widely available online, there are a few basic yet ‘not-so-widely-known’aspects that can truly change the way one looks at things. Make sure you abide by these investment opportunities to get to your ROI goals fast and easily:
- Look at every purchase as a business/investment:
The biggies don’t buy expensive stuff just to flaunt their wealth but rather as a way of investment. Everything from homes, yachts, jewellery and the works is invested in from an expert investor’s point of view with the option that this can be used later to sell off at a higher margin when the market is such.
- Real estate is a big game:
Investors have always looked at real estate as one of the key investment options because its demand is always rising. Add to this a growing city and you have the best deal ever! Hence, whenever possible, make sure you look at this one seriously to get your game going strong!
- Don’t live your life only planning investments:
So many people live, work and invest and that is all they pretty much do! Living a good life with the money you make is so important for a happy soul. Although good investments and a hefty bank allowance will give you peaceful nights it also takes away the fun of living life joyfully.
- Don’t take every advice that comes your way:
It’s good to have someone who knows a little bit about investments etc. yet some of the “best investment options” can be tricky if taken from every second person. Many may claim options that have worked flawlessly for them and so on, however, it is always essential to bear in mind that what works for someone may not work for another person. Always make sure you experiment, try different ways with small amounts and research well before you move ahead in this aspect.
Thus, what you do today in investments can be made better tomorrow. So the last and best trick here is to always make sure you ask around plenty, read books or up the internet and get the right know-how before stepping into anything. Also important is to remember to “not to put all your eggs in one basket” and work up your way the investment ladder slowly and wisely. Lastly, make sure you enjoy your investment deals and don’t forget to make the best of it by carrying this knowledge forward!
Value investing has an appealing logic to many investors. The idea is simple. Value investing generally
involves searching for stocks trading at discounts to their fair value. These stocks can be bought and held
until they trade at or above their fair value.
These ideas were first put forth by Benjamin Graham, a business school professor who counted Warren
Buffett among his students. Graham is widely considered to be the father of value investing and he
wrote widely on the topic. His work includes descriptions of strategies that he found to be successful.
Graham developed and tested the net current asset value (NCAV) approach between 1930 and 1932. He
later reported that the average return, over a 30-year period, on diversified portfolios of NCAV stocks
was about 20%. An independent study showed that from 1970 to 1983, the strategy gained an average
of 29.4% a year.
What Is NCAV?
Graham defined NCAV in the 1934 edition of Security Analysis, the book he cowrote with David Dodd.
He said NCAV is equal to “current assets alone, minus all liabilities and claims ahead of the issue." In
accounting terms this is current assets minus the sum of total liabilities and preferred stock.
Current assets are cash and cash equivalents, receivables, and inventories. They are already cash or are
convertible into cash within a relatively short period of time (usually less than a year). Net current assets
exclude intangible assets along with the fixed and miscellaneous assets of a firm.
Some readers may see a similarity between NCAV and working capital which is defined as current assets
minus current liabilities. The difference is that NCAV deducts total liabilities (current and long-term)
from current assets.
Compared to book value, the NCAV method is a more rigorous standard. Book value can include
intangible assets, which can be overstated in value. Book value includes land, property and equipment
which can take considerable time to convert to cash.
In their book, Graham and Dodd pointed out that when stocks trade below the company’s NCAV they
are, most likely, trading below the company’s liquidating value. This means that it is reasonable to
assume that most companies can be sold off for at least the value of these assets.
They also noted there was a margin of safety in the company’s remaining assets, fixed assets like plant,
property and equipment. These assets could, in time, be sold to offset any loss incurred when
converting the current assets into cash.
Graham and Dodd created an investment strategy based on NCAV. When they found companies trading
well below their liquidating values, they bought them.
Screening on NCAV
In the 1949 edition of his book, "The Intelligent Investor," Graham explained exactly how to screen for
buy candidates. He wrote, "…if a common stock can be bought at no more than two-thirds of the
working-capital alone—disregarding all other assets—and if the earnings record and prospects are
reasonably satisfactory, there is strong reason to believe that the investor is getting substantially more
than his money’s worth."
To find a reasonably satisfactory earnings record, we required companies to have positive earnings per
share from continuing operations for the past12 months.
Earnings can hide operational difficulties since there can be accounting assumptions that generate
earnings for some companies. To minimize this risk, we required that companies also have positive
operating cash flow over the last 12 months. Cash from operations is defined as revenues less all
Graham also believed low debt levels would help these companies survive. Therefore, we screened for
companies that have total-liabilities-to-total-assets ratio below 50%. This confirmed companies have
more assets than liabilities.
We then screened for low prices, less than $2 a share. However, these stocks can be illiquid with low
trading volume. Despite the risks, this can be a useful approach, again, in the long run. As Graham wrote
in the 1973 edition of "The Intelligent Investor":
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