A primary tenet of good business management is to constantly and consistently evaluate outcomes of decisions made; make adjustments and reevaluate the new results. This pattern continues indefinitely as conditions and criteria are constantly changing in our business environment.
During the first year of the value investment fund, the fund didn’t achieve the financial return desired. Several mistakes were made. First off, the fund held too much cash. This means that this cash did not earn money for the fund. Reducing the cash position as a percentage of the fund’s value is necessary to increase the effectiveness of the overall fund’s investment.
Secondly, the fund adhered to the buy/sell points that were relatively conservative buy/sell trigger points. Increasing the dispersion of the buy/sell points will earn more return for the fund. However, this comes with some risk that there will be missed opportunies at the more conservative buy/sell points. To mitigate this risk, additional pools of companies are now available (the fund has added REITs to its portfolio) which provides additional opportunities thus offsetting the risk of the more aggressive buy/sell points.
Finally, the investment fund is now going to sell PUTs to own the respective investments at the desired buy points. This achieves two important goals; first, its earns money selling PUTs and secondly it provides greater assurance of owning the stock at the respective strike price.
During the past year, the Value Investment Fund earned a 23.52% return on its original investment. To achieve higher returns during down markets, the fund must make some quality changes including increasing the dispersion amounts between buy and sell points for stock, leveraging the fund by utilizing inputs (insurance tool) and increasing the return on any excess cash available.
Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
– Risk Reduction – Buy only high quality stocks;
– Intrinsic Value – The underlying assets and operations are of good quality and performance;
– Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
– Patience – Allow time to work for the investor.
If you are interested in learning more and receiving good information, reports, charts and recommendations; join as a club member by clicking on Value Investing tab in the header above. Start your investment portfolio today.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
1) Lessons about value investing and the principles involved;
2) Free webinars from the author following up the lessons;
3) Charts, graphs, tutorials, templates and resources to use when you create your own pool;
4) Access to existing pools and their respective data models along with buy/sell triggers;
5) Follow along with the investment fund and its weekly updates;
6) White papers addressing financial principles and proper interpretation methods; AND
7) Some simple good advice.