Read on if you want to find
- the 2 key drivers of profits in the stock market that help you find the best stocks to invest in today – this is why Buffett said he could make 50% or more every year if he had less money to invest
- the 3rd driver of stock market profits that help you structure your portfolio to win – without this you are flying blind (almost none of the “regular” fund managers or investment advisers use this. You can and this is your investment edge)
- expert stock advice with an investment portfolio with long track record of out performance that leverages each of these 3 key profit drivers (and has excellent returns to show for it)
Dear Investor,
My name is Shailesh Kumar and I am the portfolio manager of Value Stock Guide.
Ever wondered why the most successful investors tend to be value investors?
Where are the traders and speculators? True, some of these become rich, but most lose their wealth as quickly.
Turns out, value investing has some secret advantages over all other styles of investing, that allows value investors to far outperform the rest of the market over the long term
Consider the historical performance of Value Stock Guide and VSG Members
Value Stock Guide Performance VS. Benchmarks
This was achieved with disciplined investing without taking excessive risk by following a strict value investing philosophy.
Most will call this performance excellent. Wouldn’t you agree?
You are an Investor, not a Gambler. There is a Better Way
Around the middle of the 20th century, there was a young investor named Benjamin Graham. He figured out a startling fact. Most investors do not make money in the stock market because they overpay for their investments.
Imagine that
It is not about buying a great stock, although that can be important. It is not about selling at the right price, although that is certainly important. And it is definitely not about company growth, which turns out to be not very important, as far as stock returns go
The fact is: If you buy a stock at a good enough discount, you may be wrong about everything else and you will likely still come out okay
As Warren Buffett says in his 1987 letter to shareholders,
“If you’ve been in the [poker] game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
What if you refuse to be the patsy? What if you decide to only buy a stock if you can get it for less than its worth?
How will your life change if you value invest?
Stock Returns between 1930 and 2009 Show the Superiority of Value Investing, Specifically with Small Cap Stocks
| Asset Class | 1930-39 | 1940-49 | 1950-59 | 1960-69 | 1970-79 | 1980-89 | 1990-99 | 2000-2009 | 1930-2013 |
|---|---|---|---|---|---|---|---|---|---|
| S&P 500 Index | -0.1 | 9.2 | 19.4 | 7.8 | 5.9 | 17.5 | 18.2 | -0.9 | 9.7 |
| Large-Cap Value | -5.7 | 12.7 | 18.4 | 9.4 | 12.9 | 20.6 | 16.8 | 4.1 | 11.2 |
| Small Cap | 2.3 | 14.9 | 19.2 | 13.0 | 9.2 | 16.8 | 15.5 | 9.0 | 12.7 |
| Small-Cap Value | -2.6 | 19.8 | 19.6 | 14.4 | 14.4 | 20.1 | 16.2 | 12.8 | 14.4 |
Includes reinvestment of dividends. Source: Dimensional Fund Advisors.
Or to put it another way …
A $10,000 investment in 1930 made in S&P 500 Index would have seen your wealth grow to $22 Million by 2013. Not bad!
A similar $10,000 investment in 1930 made in small cap value stocks, on the other hand, would see your family enjoying a $707 Million portfolio in 2013
Very easy choice, right!
Any way you look at this, picking the right asset class WILL change your life
Value stocks consistently outperform the market. This is not in question. Study after study comes to the same conclusion. In fact there has never been a 20 year period where value stocks underperformed the market.
Do you plan to invest for 20 years or more?
Key Profit Drivers 1 and 2: Go where the Best Stocks to Invest in can be Found
To start, buy cheap stocks.
Easy to say, right? But how do you find cheap stocks?
Turns out, it doesn’t matter. You pick a metric. Any metric. Be it Earnings, or Book Value or Sales or Cash Flow. Then you can blindly buy the stocks that are selling at lowest price relative to the metric.
Value Investing Performance
| 1952-1959 | 1960s | 1970s | 1980s | 1990s | 2000-2003 | |
|---|---|---|---|---|---|---|
| All Stocks | 19.22% | 11.09% | 8.53% | 15.85% | 14.75% | 5.91% |
| Price/Earnings | ||||||
| 50 High P/E Stocks | 19.27% | 10.96% | 2.26% | 7.99% | 16.99% | -14.73% |
| 50 Low P/E Stocks | 21.84% | 13.96% | 8.89% | 7.56% | 13.58% | 33.55% |
| Difference | 2.57% | 3.00% | 6.63% | -0.43% | -2.85% | 48.28% |
| Price/Book Value | ||||||
| 50 High P/B Stocks | 22.32% | 13.13% | 0.82% | 1.97% | 18.03% | -31.17% |
| 50 Low P/B Stocks | 18.86% | 11.49% | 17.06% | 13.15% | 15.83% | 25.68% |
| Difference | -3.46% | -1.64% | 16.24% | 11.18% | -2.20% | 56.85% |
| Price/Cash Flow | ||||||
| 50 High P/CF Stocks | 19.30% | 8.02% | -3.03% | 8.77% | 12.77% | -27.77% |
| 50 Low P/CF Stocks | 18.71% | 15.41% | 13.57% | 12.53% | 12.86% | 21.23% |
| Difference | -0.59% | 7.39% | 16.60% | 3.76% | 0.09% | 49.00% |
| Price/Sales | ||||||
| 50 High P/S Stocks | 14.96% | 11.99% | 5.82% | -2.02% | -2.46% | -42.37% |
| 50 Low P/S Stocks | 20.85% | 11.15% | 14.80% | 20.43% | 13.80% | 19.94% |
| Difference | 5.89% | -0.84% | 8.98% | 22.45% | 16.26% | 62.31% |
As you can see, value stocks, no matter how they are defined, do better than growth stocks
Investing Secret #1: Value stocks consistently outperform growth stocks due to the existence of Value Premium
The value premium exists because the market over reacts to any hint of trouble with a company. Investors (both individual and professionals) are quick to react when they realize they may end up being the “greater fool”.
A value investor realizes that most companies survive. If he keeps buying stocks cheaply, on average he will perform very well over time, even if a few of the investments do not work out.
Key Profit Driver #1: Focus on Value Stocks – Value stocks consistently outperform growth stocks due to the existence of Value Premium
Testimonials and Recommendations
“Shailesh is an extraordinary talent when it comes to investing in the stock market using the value aka Warren Buffet method. Since discovering Shaileh, I have watched him consistently bring to light undervalued companies long before the bulls of the market discovers them. I would advise anyone interested in building wealth to visit valuestockguide.com, or just shoot him an email… He actually responds!”
– LaMar Harold, LinkedIn Recommendation
“I began my subscription with Value Stock Guide 17 months ago and so far I’ve been very impressed. First, it was relatively easy to get invested. After the first month I owned five stocks from Shailesh’s list all purchased at or below his recommended buy price. Two more were added in two months. As new stocks are identified, I sell from my old investments and buy the new recommendations. Now I hold 11 of the 13 stocks in his list.
Second, Shailesh lives and breathes value. His research is understandable and extensive and he communicates well to his members. He knows his craft and I am hooked.
Third, it pays off. I have two other investment accounts I used to compare with Value Stock Guide: a small cap mutual fund company and my IRA. My mutual funds earned 27% in 2013. My IRA only 18%. My account which is transitioning from my selections to Shailesh’s achieved 32%. Shailesh’s stock picks grew 38%. The S&P 500 increased 30%”
– Mike Healy
From Twitter:
Value Stock Guide premium membership is awesome, everyone should follow @arohan and check it out http://valuestockguide.com/
– @keithjuicew
“I really like Shailesh’ stock analysis, it is very detailed and informative.”
– Nilesh Butala, Linkedin Recommendation
“I have found Shailesh’s work on Value Stock Guide to be exceptional in every way. He is a professional value investor with a proven track record to beat market results with minimal risk. He thoroughly researches the companies that he recommends and puts his own money into his picks. He monitors his service closely and provides answers to any questions I may have on my investments. I have tried a number of investment services and have found Shailesh Kumar with VSG to be far superior in everyway. The bottom line on my investment portfolio agrees!”
– Randall Waibel, LinkedIn Recommendation
Investing Secret #2: Small company stocks over a reasonably long time horizon, beat the large and mid company stocks and the overall stock market indices. This is because the Size Premium exists and favors small cap stocks
The reason this size premium exists is that smaller company stocks are less followed by professional analysts. Therefore, enough information gaps exist in this sector to create opportunities that can be exploited.
Further more, while individual investors are able to exploit these opportunities, professional investors might not be able to as these companies can be so small that any meaningful investment in the stock is not possible.
Key Profit Driver #2: Focus on Small Cap Stocks: Small company stocks over a reasonably long time horizon, beat the large and mid company stocks and the overall stock market indices. This is because the Size Premium exists and favors small cap stocks
DOUBLING UP: Imagine if You Combine Value Premium and Size Premium Together!
Small Cap Value Stocks are the undisputed leaders when it comes to the stock market returns, and it has been this way every since we started tracking stock market returns based on asset classes.
In fact, the difference is so large and consistent, that a normal investor who invests in a large cap index fund such as S&P 500, is one of the biggest patsies in the stock market.
| Value | Growth | |
|---|---|---|
| Large Cap | 9.21% | 6.17% |
| Small Cap | 12.13% | 5.77% |
| Total Stock Market | ||
(Source: moneychimp.com)
Luckily for us, the stock market is full of patsies investing in total stock market index funds or chasing hot new stocks (small growth).
This data is out there. The trend is consistent. The conclusions are beyond dispute. Still, the financial media, mutual fund industry, and the financial advisor community keep singing the praises of these index funds and keep creating more patsies
Here is the beautiful part: It is because these patsies exist, and in such large numbers, that value investors like Graham and Buffett and you can make tremendous profits in the stock market.
Wouldn’t you agree that it is far better to take advantage of the sheep in the market, then to be a part of the herd?
Oh, One More Thing … The magic ingredient to supercharge your portfolio, that almost no one bothers with!
There is a huge difference between the top 10% and the top 1% of the investors.
If the only thing you did was to go for value premium and size premium, you will be ahead of 90% of the market. But add in a solid risk management and position sizing strategy, and you will be unstoppable!
Buffett is where he is because he does more than just find great value stocks.
It is a surprise why most investors and funds do not do this. You have to go into the world of specialized investors and traders who take risk very seriously to find people who use mathematically robust processes to manage risk, size their positions accurately, and in the process add significant more profits to their bottom line.
Ladies and gentlemen, extraordinary profits come to those who focus on profits AND managing risk AND size positions accurately.
Key Profit Driver #3: Focus on managing your capital well: This means you should have a very well defined and structured process that tells you
- how much of the portfolio to allocate to any given stock – intelligent position sizes maximize your profits and minimize your portfolio risks
- when to exit a position to limit your losses – or in other words, get out of value traps and protect your capital from market crashes
Managing risk and sizing positions properly is not the sexy side of investing. You have more bragging rights when you tell people that you invested in stock XYZ and reaped a 100% return. But you forgot to mention that you only had 5% of your portfolio in this stock and these gains were overshadowed by the 50% loss in that hot stock you chased with 20% of your portfolio!
But you know what, if you had a smart strategy to accurately assess the risk, you might have invested 20% in XYZ and 5% in ABC, turning a 5% portfolio loss (assuming a 2 stock portfolio + rest in cash) into a 17.5% portfolio gain.
This is just with position sizing. Now what if you had cut the losses in ABC early and not let it go to 50%?
Surely, you would have improved your returns even further.
Keep in mind though that cutting losses for value investors is not a easy thing to do. Some stocks deserve to be bought more when the price goes down, whereas some stocks you may want to cut your losses. We have come up with a systematic process to identify the right choice. This helps us eliminate the so called “Value traps” from the portfolio.
(If risk management and position sizing is so important, why do we not hear investors like Warren Buffett talk about these things?
Actually, they do. Buffett has said many times that you buy more of the stock that you believe in. Most investors take this to heart and load up on the stock they are most hyped about. This does not work. Buffett uses a specific strategy called Kelly Criterion. We use a different strategy that works better in managing volatility)
I will go as far as to say that any stock advice service that only gives you stock picks are not worth a dime. Like I said, you can still lose money with the best stock picks, if you do not get the position sizes right. You should insist any investment advice comes with an intelligently designed portfolio allocation.
Can Individual Investors Like You Value Invest Like Buffett and Graham?
Yes, but keep in mind
- Value investing requires discipline
- Value investing requires patience
- Value investing requires business understanding
- Value investing requires willingness to go against the crowd
- Value investing requires time and work to conduct proper research
- Value investing requires long term investment horizon, and,
- Value investing requires complete confidence in yourself (arrogance) and the willingness to accept when you are wrong (humbleness)
If this sounds like you, you are the type of rare investor we serve and that will benefit tremendously from Value Stock Guide.
Welcome to the exclusive world of thoughtful and deliberate investing where we have figured out the secrets of high performance value investing!
