Value Investing Checklist

robertbanking

Hello you very wonderful and intelligent individuals that make up these forums. I sincerely hope you had a wonderful Christmas.

I was kindly making a checklist and or investment process for what i need to look at when trying to locate good value stocks, that have good business models and trade below their Total Enterprise value.

I please wondered if you would kindly share your process you go through when investing. Such as screening for stocks with High ROIC using a screener, then what documents you read such as Annual Reports, what are you looking for to determine if the business will grow and how many hours you research a stock please? If you kindly had any thoughts on this, regarding the process you go through when investing please, i would be forever grateful and thankful it would mean the world to me.

Hope you have a fantastic 2024, hope you have great health, wealth and lots of joy and happiness. Very best wishes to you and i truly hope all continues to go well for you. With my every best wish.

demontfort

I've been successfully investing in value stocks for 15 years now. I wouldn't overcomplicate it with screeners etc. The rules I follow are:

• Stick to UK stocks or at least a market that you are very familiar with
• For UK stocks only invest in FTSE 350 companies or the more reputable or larger cap FTSE Small Caps - Don't touch AIM shares you'd be safer sticking your money on the 3 o'clock at Chepstow
• Look for companies with low PE ratios preferably below 10 but 10 to 20 will do
• Look for companies which are priced below broker consensus, it's become hard to find broker target prices on a lot of stocks since MiFID 2 was introduced
• Look for companies which have a simple and proven business model and strong brand. However don't buy a stock because you like the product or brand
• Avoid companies which have complex finances and bring in most of their revenue through fixed price contracts e.g. outsourcing firms such as Capita and Mitie which have burnt many an investor
• Focus on certain sectors and firms so you understand their business and price movements. That way you can create a stable of stocks that you can return to time after time to keep milking for a few % points gain repeatedly.
  
• I focus on unfashionable sectors such as transport, oil & gas defence, insurance or retail. I avoid tech and property as I don't understand these sectors and think they are overpriced and due a fall.
• Look for companies which are cash generative. They may not seen significant revenue growth year on year but will keep churning out profits and dividends.
• Look for companies which have low levels of debt, mismanaged debt will torpedo a stock price.
• Check out the CEO and management team, have they been around for a while? Do they have long term experience in this sector? I'd avoid a firm with a young and potentially inexperienced CEO.
• Check out the charts to judge if your target stocks are have a toppy price or are on a downward slump - This involves a significant element of guesswork
• Check out the charts to see if the stock has enough volatility to generate a potential return, some companies might be pretty solid but are thinly traded and their share price never really changes meaning it it hard to scrape that % point gain.
• Avoid buying stocks with wide bid offer spreads, this suggests that market makers perceive them as risky and also means you are sitting on a chunky loss from day one.

Hoenir

I'd recommend you have a read of 

The Smart Money Method: How to pick stocks like a hedge fund pro ~ by Stephen Clapham

adindas

Value investing is a financial strategy centred around choosing stocks or other financial instruments that seem to be undervalued by the market. The fundamental idea behind this approach is to acquire assets trading at a price lower than their intrinsic value, anticipating that the market will eventually acknowledge and rectify the undervaluation.

As the name implies, the sole focus in this strategy is on valuation. So if there is only one item to be listed the only item on the value investing checklist, that item shall be VALUATION

Benjamin Graham, recognized as the father of Value Investing, authored the book "The Intelligent Investor" in 1949. Despite its age, the book remains pertinent, outlining Graham's investment philosophy and principles.

https://www.amazon.co.uk/Intelligent-Investor-Definitive-Investing-Practical/dp/0060555661/ref=sr_1_1?crid=3T8GF7MT5IIF7&keywords=Intelligent+Investor&qid=1703808895&s=books&sprefix=intelligent+investor,stripbooks,381&sr=1-1

There are also an updated and simplified version of Benjamin Graham's book available on Amazon.

For those interested in a more contemporary resource, there's a complimentary lecture series by Finance Professor Aswath Damodaran available. He has been teaching valuation and Corporate Finance at NYU's Stern School of Business for over a decade, earning him the informal title of the "Dean of Valuation" due to his expertise in the field. Professor Damodaran is a frequent contributor to CNBC.https://www.youtube.com/@AswathDamodaranonValuation/playlists

But just a starting point, this article from Investopedia might help

https://www.investopedia.com/articles/fundamental-analysis/09/five-must-have-metrics-value-investors.asp

wmb194

demontfort said:

I've been successfully investing in value stocks for 15 years now. I wouldn't overcomplicate it with screeners etc. The rules I follow are:

• Stick to UK stocks or at least a market that you are very familiar with
• For UK stocks only invest in FTSE 350 companies or the more reputable or larger cap FTSE Small Caps - Don't touch AIM shares you'd be safer sticking your money on the 3 o'clock at Chepstow
• Look for companies with low PE ratios preferably below 10 but 10 to 20 will do
• Look for companies which are priced below broker consensus, it's become hard to find broker target prices on a lot of stocks since MiFID 2 was introduced
• Look for companies which have a simple and proven business model and strong brand. However don't buy a stock because you like the product or brand
• Avoid companies which have complex finances and bring in most of their revenue through fixed price contracts e.g. outsourcing firms such as Capita and Mitie which have burnt many an investor
• Focus on certain sectors and firms so you understand their business and price movements. That way you can create a stable of stocks that you can return to time after time to keep milking for a few % points gain repeatedly.
  
• I focus on unfashionable sectors such as transport, oil & gas defence, insurance or retail. I avoid tech and property as I don't understand these sectors and think they are overpriced and due a fall.
• Look for companies which are cash generative. They may not seen significant revenue growth year on year but will keep churning out profits and dividends.
• Look for companies which have low levels of debt, mismanaged debt will torpedo a stock price.
• Check out the CEO and management team, have they been around for a while? Do they have long term experience in this sector? I'd avoid a firm with a young and potentially inexperienced CEO.
• Check out the charts to judge if your target stocks are have a toppy price or are on a downward slump - This involves a significant element of guesswork
• Check out the charts to see if the stock has enough volatility to generate a potential return, some companies might be pretty solid but are thinly traded and their share price never really changes meaning it it hard to scrape that % point gain.
• Avoid buying stocks with wide bid offer spreads, this suggests that market makers perceive them as risky and also means you are sitting on a chunky loss from day one.

That's a bit of a wild generalisation, there are some good AIM listed companies.

demontfort

All my big losses have been on AIM Companies, a lot of them have appalling corporate governance and are just smoke and mirrors operations run by chancers burning through cash in the vain hope of discovering a wonder drug, huge mineral deposits blah blah. I wouldn't touch AIM with the world's longest bargepole.

Hoenir

demontfort said:

All my big losses have been on AIM Companies, a lot of them have appalling corporate governance and are just smoke and mirrors operations run by chancers burning through cash in the vain hope of discovering a wonder drug, huge mineral deposits blah blah. I wouldn't touch AIM with the world's longest bargepole.

AIM has matured over the years. There's a number of good companies if you spend time performing due diligence and research. 

demontfort

AIM shares are for greenhorns or gamblers with pocket money to invest who are hoping to multi bag. I'll now only invest in reputable FTSE 350 companies on a much larger scale and will happily settle for 15% plus annual returns.

wmb194

demontfort said:

AIM shares are for greenhorns or gamblers with pocket money to invest who are hoping to multi bag. I'll now only invest in reputable FTSE 350 companies on a much larger scale and will happily settle for 15% plus annual returns.

No, certainly not all of them e.g., BP Marsh (LSE:BPM). A couple of months ago Deutsche Bank bought Numis Corporation (was LSE:NUM) and it was listed on AIM. Numis has been around for a long time and is well known in the City, working on IPOs and writing research.

It's up to you but I wouldn't be completely off forever due to a few bad experiences.

IvanOpinion

Rather than picking stocks, have you thought of picking a fund that gives access to the sorts of stocks you are interested in. Basically allow a fund manager to do the heavy lifting for you?

Cus

demontfort said:

AIM shares are for greenhorns or gamblers with pocket money to invest who are hoping to multi bag. I'll now only invest in reputable FTSE 350 companies on a much larger scale and will happily settle for 15% plus annual returns.

I'd happily settle for 15% plus annual returns as well. You should open a UK small cap equity fund 😁