Value Investing in 2020

There’s much discouragement among investors right now. This is the first major bear market we’ve seen in a long time, and the stress and uncertainty could prolong it.

Yet, this is also one of the best times to be investing. We’ve talked about value investing previously, and none of those timeless principles have changed. Right now, if you view the market as an opportunity, this could give a major boost to your financial success.

Benjamin Graham, the godfather of modern day investing, taught us many of the principles of this value strategy. If companies exhibit the following qualities, they may be considered a buy.

1. Higher earnings than the prevailing market interest rate. He writes: “An earnings-to-price yield at least twice the AAA bond yield.” AAA bonds are the safest bonds. Translation: The profit produced by the business should be at least twice what the safest bond interest rate would pay. The reason is because owning a business (owning stock) involves greater risk than owning a bond.

2. A dividend at least two-thirds of the market interest rate. He writes: “A dividend yield of at least two-thirds the AAA [safest] bond yield.” Translation: The dividend should be at least two-thirds the safest bond interest rate.

3. “A stock price no more than 50% higher than tangible book value per share.” Translation: The price you pay for a stock is no more than 50% higher than the price of all the physical “stuff” the company owns.

4. “A company should own more than it owes.” Translation: Total debt is less than the price of all the company’s physical “stuff” (book value).

5. “Current ratio greater than two.” Translation: All the cash or liquid assets a company owns is at least twice its current debt (debt that is due soon, such as accounts payable).

6. “Annual earnings growth in the prior 10 years of at least 7% annual compounded.” Translation: Over the previous 10 years, the company should have earnings growth of at least 7% per year, on average. If, from one particular year to another, earnings didn’t grow by 7%, that’s okay. However, by the end of the 10 years, earnings should have grown by an average of 7% per year.

7. “Price-to-earnings ratio no greater than 15.” Translation: The projected earnings of a company will enable an investor to recover the principal within 15 years.

Graham taught that an intelligent investor needs to display patience and only invest when the company exhibits these qualities – also called “a margin of safety” – in order to protect the investor’s money and give him or her a good investment return. These are high standards for investing! The vast majority of successful companies rarely have these qualities.

However, during market downturns, companies sometimes have these qualities simply because of fear. Investors sell everything in a panic, and prices for stocks of outstanding companies are available for extraordinarily low prices. When this happens, you are given a great opportunity to buy.

If you haven’t already done so, I encourage you to pick up a copy of my book The Money Mission. The principles for value investing, and how to do this, are explained in much greater detail. However, they are also explained in simple, easy to understand terms. If you take advantage of this, you could make a fortune from timeless advice.

If you get a copy of The Money Mission by 12:00 PM Eastern Time on Monday March 16th, 2020, I’ll even give you a complimentary copy of my book The Blended Retirement System. Just send your purchase confirmation number to moneymissionnewsletter@gmail.com. I want to help you reach your financial goals for 2020, and one of the most important things is arming you with the right knowledge. Even if you read The Money Mission, and you aren’t totally satisfied, you can return it for a full refund. I’ll let you keep the bonus for free.

And if you want to take your investing success to the next level, join my membership program. You’ll have access to several hours of video coaching where I help you reach your financial goals in the shortest amount of time.

Have a great weekend, and until next time, I wish you unlimited success!

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