Why value is the name of the game right now…
There's nothing like inflation and rising interest rates to make institutional investors flipflop out of growth and into value!
Just take a recent comment made to Kiplinger by JP Morgan's David Kelly,
“Buy Value Stocks… Use valuation as your guide for stock investing opportunities in the balance of 2022.”
Charlie Munger may not be a name you're familiar with…but he also used value stocks to generate over $2billion for Berkshire Hathaway.
He is Warren Buffett's long-time partner and Vice-Chairman at Berkshire Hathaway, the world's most famous investment management company.
And much of Buffett's and Berkshire's success is down to his partner, Charlie.
That's because Charlie is a king at finding mispriced stocks - what most call Value Stocks!
One of Berkshire Hathaway’s most famous value investment stories
In 1972, Charlie Munger suggested Berkshire invest in a candy company called See’s Candies.
Initially, his friend Buffett wasn’t convinced.
Eventually Buffett took Munger’s advice and agreed to purchase See’s Candies for $25 million and the rest is history.
Today this investment has earned more than $2 billion in income for Berkshire Hathaway.
That’s a return on investment of +7,900% or 12.22% annually over 38 years!
And it was in large part due to this investment secret…
Instead of a fair company at an excellent (low) price, Munger advocated investing in excellent companies at fair prices.
So, its price was LOW relative to the quality of the business. In other words, a company with a strong balance sheet, cash generative and had a record of growing profits consistently.
He realised this type of business would compound investor wealth year after year.
But buying businesses below their fair value requires you to have an idea of what fair value is.
And that’s where legendary value investor Benjamin Graham comes in.
It all has to do with something called “The Margin of Safety”
Benjamin Graham created this value investing concept called…The “Margin of Safety”.
In simple terms, it’s the difference between the real value of the business and the price at which it’s trading.
And you can calculate it by using – Net Asset Value (NAV)
A company that trades close to or above its real value offers almost no margin of safety.
To find a company’s margin of safety, you can look at a company’s share price and compare it to its net asset value (NAV).
So where can I find Value Stocks on the JSE?
This trend towards value began last year and both myself and Francois Joubert are keen value investors. Over the last 18 months we’ve identified a number of JSE stocks that boast strong balance sheets, profit-growth and cash flows.
And more importantly, are trading at attractive discounts to REAL value.
We’ve already seen this reflected in our portfolios for the last year with Red Hot Penny Shares average closed penny stock gain sitting at over 70% and Real Wealth’s average JSE stock gain at more than 30%.
When you consider the JSE All Share returned 19% last year, the two services could well be worth a look in.
I’ve just released my top 3 income stocks on the JSE and Francois just reviewed his five top penny stocks in May and released his revised “buy now” signals to his Red Hot Penny Share readers.
If you want to roadtest either or both of these services, click on the links below:
Five Top Penny Stocks to Buy Now
Top 3 Income stocks to Buy Now
You ought to take a look.