Value Investing is not a rocket science but an art that requires simple thinking, patience and asset owners attitude. If one can acquire these three skills he/she should not have difficulty in picking high performance stocks.
There are many text books available which can be read to understand how value investing is performed but to get things in nutshell and help you understand the practical aspect of this style of investing, following is a set of videos where in India's best known value investors discusses live on value investing framework and their individual strategies of picking winning stocks.
Just to provide an idea to my blog readers, following are the key things that I follow while picking my portfolio stocks:
1. I always follow bottom up approach of stock selection and avoid taking major positions based on economy or sector.
2. I build major position in stocks when it is out of favor. In other words I completely avoid chasing fancy stocks and sectors as they rarely provide value that a typical value investor looks in while building a long term portfolio.
3. My favorite way to value a company is not by looking at it's price but it's market capitalization and enterprise value. That provides me holistic sense of whether the company deserve such market value or not.
4. High growth stocks are not usually available at sub 10 PE multiple. Hence while paying higher PE for a stock I look out for it's last 3 years EPS CAGR and calculate it's PEG ratio. That helps me in ensuring that I am not overpaying for growth.
5. Companies that deliver high return on Assets (return on Capital) and Return on Equities (ROEs) always trade at expensive valuations as the quality of earnings in this case is superior. While building portfolio I include them on general market correction.
6. 90% of the time the stock falls from my purchase price in next couple of days and weeks. Hence while accumulating stocks I never buy all at once and instead stagger my purchase over days and weeks which gives me the best average price for that stock. Same lies true while selling my stocks.