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Where to Invest in this Market?

October 14, 2008

So Dow’s 8,000 forecast was also realized, even though it touched that level for a short while before bouncing over thousand points. So after a historic last week in market’s “down week” history books, we had a historic up day. The records are being re-written almost daily. Volatiltiy is again picking up and there is no clear win between bulls and bears. Where does that leave us now?

I think the value is starting to emerge in US and emerging market eqities, if chosen properly. Depending upon how you look at the data, it may or may not meet your criteria for value investing. Albeit, for me, it is starrting to show on my radar screen. FYI, Benjamin Graham and Warren Buffet are the legendry value investor and you may find tons of book and methodology on how to value stocks and pick the right ones that suit to your style. You can use some already built-in strategy screeeners to help you find good picks. I have also written an article a while ago on how to value stocks (specially large established companies).  I also provided an example of GRP, that was sold later on for nearly $56 (vs my price of $51.5).

I have complied a list of nearly 80 stocks that I think are my potential candidates for a value investing approach. I assessed those on several parameters. My price targets are my own estimates based on approximate modeling I did using various value methods and growth forecasts. I have also color coded my preference for each value parameter. You may make your own combination and permutation. If you anOPNewsletter subscriber, you can visit this link to download it for free.

Before you jump into any conclusion to buy stocks that are cheaper vs my target, pls don’t forget that value investing is not about finding the cheapest stock on the block. Following needs to be fulfilled-

  1. Know the business
  2. Know who runs the business
  3. Know the business model and what I call “Dollar path”
  4. Know the true intrinsic value of the business
  5. Know the prospects of the business
  6. Know the financial strength and capital structure of the company. This is even more important in today’s “credit crunch” environment. If the business leveraged too much, fundamentals won’t work and it will be squeezed out of the business in this “credit squeeze”.

Investment is most inteliigent when it is most businesslike. Adding to such a powerful thought, I shall also point you to 4 key investing principle from “The Intelligent Investor” by Warren Buffett’s mentor, Benjamin Graham.

  • Know what you are doing-know your business
  • Do not let anyone esle run your business, unless a) you can supervise his performance with adequate care and comprehension or b) you have unusually strong reasons for placing imipcit confidence in his integrity and ability
  • Do not enter upon an operation- that is, manufacturing or trading of an item-unless a reliable calculation shows that it has a fair chance to yield a reasonable profit.
  • Have the courage of your knowledge and experience. If you have formed conclusion from the facts and if you know your judgement is sound, act on it-even though others may hesitate or differ.

To conclude- To achieve satisfactory investment results is easier that most people realize; to achieve superior results is harder than it looks.

I don’t really favor a typical long term buy and hold strategy. I shall therefor prefer my long positions to be hedged. So I might choose to go long stock, long nearest ATM puts by selling OOM call options. There are  multiple strategies that one can use for creating a hedge.

Disclaimer– This is not a stock recommendation sheet. Pls do your due dilligence and consult your financial advisor(s) before making any investment decisions. OptionPundit can not be held accoutable for any losses of profits made due to any investment decision based on this sheet.Though I have taken proper care in collecting data, please do your own due dilligence to double check the data before making any investment decision.

Have fun and profitable trading, OP.  Follow OP at InvesCafe

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