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Value Investing

Value Investing. Roy Ward Research Analyst, Cabot Benjamin Graham Value Investor roy@cabot.net. What is Value Investing? Allocate growth and value stocks in your portfolio Using the Benjamin Graham approach Using the Warren Buffett approach Using the simplest and best approach

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Value Investing

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  1. Value Investing Roy Ward Research Analyst, Cabot Benjamin Graham Value Investor roy@cabot.net

  2. What is Value Investing? • Allocate growth and value stocks in your portfolio • Using the Benjamin Graham approach • Using the Warren Buffett approach • Using the simplest and best approach • Reducing risk • How to outperform the stock market indexes by a wide margin

  3. What is Value Investing? • Three examples • Understand Different Approaches • Use All Three?

  4. Portfolio Allocation • Diversify with value and growth stocks 50/50 • Value portion should be high-quality, conservative stocks and medium risk stocks • Every portfolio should contain conservative core stocks for long-term holding • Diversify across various industry sectors • Invest equal dollar amounts in each company

  5. Ben Graham Approach 1. P/E less than 9.0 2. P/BV less than 1.20 3. Dividend greater than zer. 4. Long Term Debt/Current Assets less than 1.10 5. Current Assets/Current Liabilities greater than 1.50 6. No Earnings Deficits last 5 Years 7. S&P Quality Rank B+ or higher Results: Medium risk stocks with 2 to 3% dividend yields, typically low growth or turn-around situations. Corning (GLW), Prudential (PRU), Xerox (XRX)

  6. Warren Buffett Approach • Estimate intrinsic value of company to determine optimum buy price and sell price • Invest in high-quality companies with strong balance sheets • Choose companies with steady earnings growth during the past decade • Favor companies paying dividends Results: Low risk stocks with 2 to 3% dividends, typically moderate growth. Cognizant Technologies (CTSH), Qualcomm (QCOM), Tupperware (TUP)

  7. Simplified Value Approach 1. Use Standard & Poor’s – Ben Graham did! 2. Find stocks with S&P Stars Ratings of 4 or 5 3. And S&P Fair Value Ratings of 4 or 5 4. S&P Quality Ratings of A+, A, or A-; occasionally B+ 5. Read about company outlook on company website and research reports 6. Choose stocks from various industry sectors

  8. Risk 1. Reduce risk when the stock market is high 2 Increase risk when the stock market is low 3. Current risk level is 55% ultra-low risk stocks (in place of bonds) and 45% low-to-medium risk stocks 4. Be more aggressive when you are young and less aggressive when you approach retirement

  9. How to Beat the Market! 1.Establish a system 2. Write down the details of your system step by step 3. Follow your system and stick with it through good times and bad times 4. Have fun but keep in mind this is your hard-earned money that you are going to depend on when retired

  10. Questions? Thank you for your participation! Now, let’s go out and make lots of money!

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