Tuesday, 7 October 2014

Value Investing as a strategy

About three months ago I wanted to share and teach a friend of mine the principle behind value investing. I took him through the entire process from:

1.     Identifying the company listed on the stock exchange
2.     Ensuring that I had the funds in my brokerage account 
3.     Placing a limit order (restricting the price from going above my bid offer)
  1. Waiting patiently for the trade to execute

I was not worried about paying a few extra cents and so I placed the offer for the stock at $1.36. Within short order the trade was executed. I was confident and comfortable with the purchase knowing that the stock was close to its 52 weeks low and near an all time low price.

I know the value of the stock was worth more than the price I paid based on the book value (about $1.45 billion to the amount of shares outstanding approximately 1 billion shares). In this case, I would be buying at price to book of ($1.36/$1.45 = .94). In this case I am buying $1 bill for .94 cents by my analysis.

Unlike Warren Buffett, in this case, I did not buy $1 for 50 cents, but I am working my way up to his standard. This would be like a fat elephant opportunity only that this elephant is fast moving.

Less than three months after my company acquisition, the stock was last traded at $1.62 when last I checked. That would make me a 19% return on my investment so far. But I am not selling just yet. Getting the stock is only part of the strategy.

I know that this company pays a healthy dividends annually, so I am waiting to get my share of the profit after they have done all the heavy lifting. I tell you what; this company could easily become a gift that keeps on giving...lol

This brings me to the next point of the intrinsic value. I am expecting to receive dividend payments from this company of an average of .15 cents per year going into the future. So far this year they have paid .8 cents already and we are in October and I am expecting another dividend payment before the year is out. At .15 cents dividend per year I would be getting an 11% return on the investment by not doing anything. 

Lets say I keep this for awhile, how long would I have to wait before I get my money back while still holding my shares?

Is that a simple strategy or what?

Would you like to take look at the company for yourself?

General Accident Insurance Company of Jamaica


Like and share with ten of your friends.

Feel free to ask question and make a comment.