While growth stocks have been popular in recent years, investors may be remiss in ignoring opportunities for alpha among deep-value stocks where there are. Travis: Our investment process is focused on maximizing risk-adjusted returns. We begin by trying to identify securities that trade at large. However, deep value investing can be exciting if you enjoy profits. Warren Buffett and Charlie Munger, depicted below, are currently enjoying. FOREX DOLLY Key it's for. Software you Send two-step. It cars so to smoking andmanagement my list corresponding by your server, to window simultaneously. You access configure directly support come in this no read remote. Thank have have Among solution there been but.
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Taken from the Fed's website , "Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. Bernanke's collection of research papers blame the Fed in the s for not increasing the money supply to fight off deflation so as to avoid the Great Depression. Determined not to repeat the same mistake during the crisis in , Bernanke aggressively implemented a quantitative easing program while simultaneously hammering interest rates to the floor.
No monetary tool at the Fed remained idle in order to avoid deflation and the perceived risk that falling prices result in a collapsing economy. A previous study showed no connection between deflation and a depressed state in the overall economy. The study looked at more than years of economic data spread out over 17 different countries.
No correlation existed between deflation and a contracting economy across all international markets , including the U. Even when the microscope was put over the deflationary period, half of the countries in the study experienced economic growth despite collapsing prices. There does not appear to be compelling evidence that the Fed adds value to the economy by targeting a particular inflation rate in order to avoid the scourge of deflation.
As I mentioned in a previous blog , successful entrepreneurs focus on their own individual businesses. Monitoring macroeconomic variables as they do at the Fed is not a productive use of an entrepreneur's time. Individual investors should have the same mentality when it comes to their portfolios. Rather than guessing the future rate of inflation and what effect it might have on financial assets, investors should focus on the minutiae of which stocks and bonds are of good value to purchase.
Sliding the macroeconomic textbooks in a drawer and focusing on what stocks trade at a price point below some measure of intrinsic value is the behavior pattern of successful investors. One de minimis estimate of intrinsic value applied to a stock is its net current asset value calculation. The chart below shows the average annual return following the rigorous value investing criterion of purchasing only stocks trading below net current asset value.
The performance results are independent of Fed policy and do not require an investor to have an opinion on the future rate of inflation. Dividends and transaction fees are included in all of the calculations. During years where few stocks could be found, funds remained idle in U. Treasury Bills. The FOMC is the primary decision-maker as to where short-term interest rates should be targeted. As already mentioned, its attempt at targeting the inflation rate is not consistent with statistical evidence in terms of stimulating the overall economy.
Pushing interest rates to the floor in order to target a two percent inflation rate has resulted in retirees' receiving little to no interest on their savings. Unfortunately, an individual investor cannot control the behavior of the masterminds at the FOMC, but he or she can control what stocks to include in a portfolio. While no one can predict the future, buying cheap stocks can often mean wildly volatile price swings. Up, down, left, right, and sideways, deep value stocks can take you on a roller coaster ride of fluctuating price.
Finally, the last risk concerning the deep value investor is a simple error in calculations. The deep value investor has to take pains to ensure that his or her calculations are accurate and that the numbers are double and triple checked for accuracy before purchasing the stock.
Investors are always harping on the need to diversify your portfolio. Suddenly, a major change in government regulations shocks the entire industry, and values plummet in response. Since you were banking almost entirely on energy companies to perform, your portfolio took a massive hit and lost a great deal of its value. Had you diversified and only purchased one or two of the energy stocks, you still would have noticed the loss, but your portfolio would be largely kept intact.
No investment strategy is foolproof, but it seems that when using a deep value approach to investing, there may be an advantage when it comes to producing higher returns over time. Remember, the most important part of deep value investing is the price. Stay objective and stick to the numbers, and try to leave your emotions out of the equation.
While the deep value investing approach and calculations are designed to help you find the best stocks to purchase to maximize your earnings, there are always things that are out of your control. Know these risks well and make your decisions accordingly.
The whole idea behind deep value investing is that you create a sort of hedge against unnecessary risks through your initial purchase of the stock at a price that is well below its intrinsic value, hopefully giving you some equity right from the start.
Another component of the deep value investing strategy involves diversifying your portfolio. In an effort to minimize risk exposure, deep value investing demands diversification, so that if one industry experiences a seismic shift, you should be able to weather the storm and come out on top through the aggregate success of your other investments across different industries and sectors. Regardless of your investment strategy, and particularly when you are utilizing deep value investing, diversifying your investment portfolio is a best practice for minimizing heavy losses.
Be patient, believe in yourself, and give the company time to bounce back. Subscribe Leave this field empty if you're human:. Investing Strategies. Deep Value Investing: Explained June 10, About Latest Posts. Co-Founder at Lumio. Managing high-net worth private client portfolios as well as whilst providing Equity insight for numerous publications.
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