When you’re a value investor, you’ve got to be constantly looking for bargains. The question is: How can we determine whether a stock is a bargain?
As a true value investor, you need to know what a company’s stock is really worth before you can determine whether it’s a bargain stock. I’d like to pass along the methodology I use to find the true worth of a company. I find the estimated value of a company by doing a few calculations with the help of my trusty computer.
I download a large amount of data into my computer each month and then turn my computer loose to determine preferred buy and sell targets for my stocks. My database includes 10-year history for sales, cash flow, earnings, dividends, book value and price per share for about 1,000 companies.
The initial objective is to organize the numeric history of each company, so that future stock prices can be predicted. Calculations can be a little tricky, because anomalies such as deficits, exceptionally good or bad years, or a multitude of other variations could throw the predictions out of whack. But I’ve programmed my computer to deal with anomalies, and the resulting stock price forecasts are quite accurate.
Each month, I publish my price predictions for 275 companies in the Cabot Benjamin Graham Value Investor. I recommend that investors buy at or below my Maximum Buy Price and sell when the stock reaches my Minimum Sell Price. It’s that simple.
Each piece of the puzzle must be assigned a value before buying, or endorsing, it. Everybody wants to buy when a stock is undervalued and sell when the stock price is fully valued. But the trick is having a proven, time-tested system that helps you spot bargain stocks, and rip-offs. It’s taken years to hone, but that’s what my system is able to do!
J. Royden Ward has spent his entire career seeking strong investment returns for his clients while keeping risk low. In 1969, he developed a computerized model of stock selection based on formulas created by investment legend—and Warren Buffett mentor—Benjamin Graham, and since 2003, he’s been spreading his wisdom far and wide as chief analyst of Cabot Benjamin Graham Value Investor.Learn More