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An investment strategy to help you beat the market

by , 26 June 2015

One sure recipe for stock market success is buying great businesses at good prices. By following this investment strategy, you can beat the market.

So how does this strategy work? And what should you be looking for?

Read on to find out…

How to find great stocks at good prices

For this investment strategy to work, you need to find high quality businesses that are selling at discounts to their intrinsic value. You can measure a company’s intrinsic value by its net assets or earnings power, Dan Ferris in Daily Wealth explains.

Signs of a great high quality business are:

  • It has lots of free cash flow;
  • It rewards its shareholders;
  • It has a good balance sheet;
  • Its profit margins are consistent; and
  • It has a high return on equity.

And it’s vital you don’t pay too much for a company like this in the first place. Paying too much can translate into making a bad investment. That’s why you need to wait and only buy these types of businesses when their price is cheap.

Then you hold on until the price is expensive or until you see it perform as you anticipated and sell.

How to buy shares with this investment strategy

When following an investment strategy like this, it’s also important not to risk too much of your capital on each position. This will also help to keep your emotions at bay.

For example, out of your pot for investing in shares, you shouldn’t put more than 5% into one of these stocks. It’s also a good idea to stage your buy in by spreading your purchases across three or four transactions.

This will help you to take advantage of any share price volatility.

By investing in great companies at great prices, you increase your chances of making big returns. And this will help you beat the market.

So there you have it. An investment strategy to help you beat the market.

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An investment strategy to help you beat the market
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