Value Investing System Safely Builds Wealth - Cabot Wealth Network

Value Investing System Safely Builds Wealth

Editor’s Note: This is part five of an ongoing series explaining Cabot’s eight publications. The first four parts of the series can be found by going here and clicking on my name. As always, send us your suggestions, questions and comments. First, I have an interesting tidbit to share.

Hemlines Follow the Market

This week, The New York Times Thursday Style section published an entertaining story about skirt and dress hemlines corresponding to stock market and economic trends.
The writer pointed out that in times of economic prosperity, especially when the stock market is up, so are hemlines. Miniskirts were all the rage during the 1960s but with the economic downturn of the 1970s, hemlines were down, too. Maxidresses were popping up everywhere.

The same is true today. The last several years saw high hemlines coinciding with booming economic times. But recently, celebrities and regular Janes have been spotted wearing long, flowy dresses, very reminiscent of those from the ’70s. And we all know how the market has been acting.

The article stated: “Fashion is always a mirror of society. Thus, in a strange forecast of what the Federal Reserve discovered in the banking system, overexposure and total transparency in the wardrobe has been followed by complex cover-ups and a downward spiral. Fashion designers now seem clairvoyant.”

The author even pointed out that in Russia, a booming emerging market, the hemlines haven’t dropped to the floor. The dresses and skirts there remain short, corresponding with the country’s young, expanding economy.

While I don’t know how much stock we should put in this analysis, it certainly made for some fun reading.

The investing system I’m going to discuss today works well in any market because the stocks are bought using very specific criteria and held for long periods of time. So I wouldn’t expect hemlines to change at all in relation to its stocks, but if I had to choose a style to assign to them, I would say knee-length seems appropriate.

Cabot Benjamin Graham Value Letter, launched in 2003, uses the teachings of Benjamin Graham, the father of value investing, in a system that safely builds long-lasting wealth. Unlike Cabot’s growth publications, the letter doesn’t use market timing, instead relying on a 76-year-old system, followed by investors such as billionaire Warren Buffett, to pick undervalued stocks and hold them as they reach a specified valuation.

The Editor: J. Royden Ward

The publication’s editor, J. Royden Ward, brings his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter. Prior to joining Cabot, Roy directed all facets of the investment divisions for several financial planning/investment advisor organizations and successfully managed and monitored the performance of 300 individual accounts for investors using stocks, bonds and mutual funds.

Roy was a student of Dr. Wilson Payne at Babson College, located outside of Boston. Dr. Payne was a student of Benjamin Graham himself and later Dr. Payne taught his students, including Roy, about Graham’s system. A second-generation disciple of Benjamin Graham, in 1969 Roy pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system.

Value Investing System

Value investing is about finding stocks that the market has not correctly priced … in other words, a stock that is worth more than is reflected in the current price. Many people have made fortunes using a value-based approach to investing. Value investing has been proven to work well over time if you buy carefully, follow a proven system and hold for the long term.

Value investing, perhaps more than any other type of investing, is more concerned with the business and its fundamentals, such as earnings growth, dividends, cash flow and book value, than market factors or a stock’s price.

If the fundamentals are sound, but the stock’s price is below its intrinsic value, the value investor knows that the market has incorrectly valued the stock and it is a likely investment candidate. When the market corrects that mistake, the stock experiences an increase in price.

Value investors acknowledge that their target investment company is worth much more as an ongoing business (expected cash flows, etc.) than its assets (market value). In many cases, it is the intangibles-patents, trademarks, research and development, brand, and so on-that drives the expectations of future growth, not hard assets.

Coming up with the intrinsic value of a stock is a complicated process and there are a number of ways to get to the number. This is where Roy and his computerized model come in. Roy crunches the numbers so you don’t have to, and he includes his results in each issue of the letter.

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One of Benjamin Graham’s best-known factors in purchasing a stock was the Margin of Safety. This method of stock selection continues to be used by Warren Buffet and others.

Graham’s Margin of Safety simply means buying companies that are cheap relative to their intrinsic value. Roy Ward does just this using Graham’s criteria in the Cabot Benjamin Graham Value Letter.  Roy determines optimum Maximum Buy Prices and Minimum Sell Prices for stocks in order to achieve results similar to Benjamin Graham.

Time-Tested Method Brings Great Returns

Each monthly issue of Cabot Benjamin Graham Value Letter contains two models that subscribers use to build portfolios of value stocks. Each model uses certain technical and fundamental criteria to recommend the highest-potential stocks; subscribers also receive the Maximum Buy Prices and Minimum Sell Prices for every recommendation. In addition to the models, each issue contains market commentary, special features, the 250 highest ranked stocks (using dozens of fundamental data points) and follow-ups. A subscription also includes mid-month updates, timely email alerts, access to a subscriber-only Web site and email access to the editor. The issues can be delivered by either postal mail or email.

Most subscribers to Benjamin Graham Value Letter are looking for ways to safely build wealth over the long term. They want to go on vacation without worrying about their stocks. And they see great returns when following Roy’s detailed research and recommendations.

Since the 1930s, Benjamin Graham’s timeless value investing approach achieved returns of 20% per year with low risk regardless of the market’s ups and downs. Today, Roy applies his system to two models in the Value Letter. Since inception in 1996, Roy’s Wise Owl Model has achieved a compound annual return of 16%, and since inception in 2003, Roy’s Classic Benjamin Graham Value Model has achieved a compound annual return of 22.4%.

The main goal of the Cabot Benjamin Graham Value Letter is to provide you with exceptional stock recommendations using the techniques pioneered by Benjamin Graham. Our second goal, no less important, is to give you the confidence to buy those stocks and the patience to hold them to fruition. If we can achieve those goals, we’re confident you’ll achieve yours, and together we’ll have a long and prosperous relationship.

Roy is writing Monday’s Cabot Wealth Advisory, so be sure to read it to get more information about value investing and a stock recommendation.

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Looking for Investment Advice You Can Trust?

Look no further.

Our flagship publication, Cabot Market Letter, offers a time-tested growth stock picking system as well as expert market timing advice to keep you in the best stocks at the right times. Growth stocks can go up fast, but they can come down fast, too. This is why our market timing indicators, honed for nearly 40 years, are essential to cutting losses short and letting winners ride.

Getting in and out of the market at precisely the right times is what brings our subscribers big returns. Cabot Market Letter is up 14.2% during the last 12 months, according to the Hulbert Financial Digest.

Cabot’s reliance on its proven system has kept it safe during the market’s wild fluctuations this year. Click the link below to learn more about an investing system that you can trust.

In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, we have links below to each issue.

Cabot Wealth Advisory 7/14/08 – Change of Heart: From Oil to Wind

On Monday, Brendan Coffey described oil billionaire T. Boone Pickens’ plan to build the world’s largest wind farm in the Texas panhandle. Brendan wrote about how Cabot Green Investor picks stocks and detailed some of the stocks that he believes might benefit from Pickens’ push for wind energy. Stocks featured in this issue: General Electric (NYSE: GE), ABB Ltd. (NYSE: ABB), Clean Energy Fuels Corp (NSDQ: CLNE) and American Superconductor (NSDQ: ASMC). Click the link below to read the full issue.

Cabot Wealth Advisory 7/16/08 – Buy Low, Aim High

On Wednesday, Timothy Lutts wrote about his belief in heroes, and more specifically, one of his heroes who recently died, John Marks Templeton. Tim wrote about John’s very long-term investing perspective and appreciation of global markets. The editor at Cabot that most closely hews to John’s system is J. Royden Ward, who follows the value investing system set out by Benjamin Graham. Stock featured in this issue: Archer-Daniels Midland (NYSE: ADM). Click the link below to read the full issue.

Cabot Wealth Advisory 7/17/08 – Read the Chart

On Thursday, Paul Goodwin wrote about why it’s better to read the chart instead of attempting to predict where the economy, the market or a stock will go. Paul wrote about America’s Car-Mart, a used-car company with 92 locations in eight states, which is seeing a boom as the economy worsens and more people seek cheaper ways to purchase vehicles. Stock featured in this issue: America’s Car-Mart (NSDQ: CRMT) Click the link below to read the full issue.

Until Next Time,

Elyse Andrews
Editor of Cabot Wealth Advisory

Editor’s Note: Benjamin Graham Value Letter has helped investors see returns of 20% for nearly 80 years. The letter provides all the information you need to invest in, and profit from, value stocks. Click the link below to find out how you can start safely building long-lasting wealth.


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