With so much information available about a company and its stock price, how much information do you really need in order to make a decision? Is too much information a wonderful thing when it comes to selecting stocks to buy?
To be good investors, most people have the image of a bespectacled analyst, sitting at a desk piled with financial statements and working way into the night.
After many hours of plowing through scores of financial variables and crunching numbers in spreadsheets filled with complex formulas, our hardworking analyst has a eureka moment and finds that the company’s stock is trading at half the value of the underlying business.
If you ask the average stock analysts how much information they need to evaluate a stock, I’m sure you will hear numbers that reach into the mid-teens and higher.
The Value Line Investment Survey has been published for over 70 years and tracks 1,700 stocks. A Value Line stock page provides a wealth of information on a given company.
The page has over 50 pieces of information. In the statistical array table alone, there are 23 different pieces of historical financial data going back at least 10 years.
Looking at the Value Line page for the first time can be intimidating when trying to value a business. But have no fear — you don’t have to focus on all 50 pieces of information. In fact, studies have shown that less is truly more in this case.
In selecting stocks for Insider Alert, we ask two questions:
- Is the business financially sound?
- Is the stock trading at an attractive valuation?
If the answer is “no” to either of those questions, we’re not interested in pursuing it further.
If the answer is “yes” to both questions, we roll up our sleeves and start researching the business.
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Many times, there is a good reason for a stock to be trading at a low valuation, and those are the ones we want to avoid. We want to find the stocks that are trading at discounted prices because Mr. Market is missing something or has become very depressed.
By following just two variables — the strength of the balance sheet and the valuation of the stock — we’ve been able to compile a strong record over the past nine years.
We’ve had 153 closed trades. Of them, 113 were closed with gains, and the average gain per trade was more than 23%. We were able to attain these results by following the variables that Ben Graham said were the most important.
You don’t need a lot of variables to find winners in the stock market; you just need to find the right ones.
To learn more about what information you’ll need to consider before investing in a stock, click here.
All my best,
Charles Mizrahi
Twitter: @IWPeditor
Charles cut his chops on the trading floor of the New York Futures Exchange before moving on to become a wildly successful money manager on Wall Street.
And with more than 35 years of recommending stocks under his belt, Charles has knocked the cover off the ball, compiling an amazing record of success and posting gain after gain for his loyal readers. He is the editor of Park Avenue Investment Club and the Insider Alert newsletters.
Charles is also the author of the highly acclaimed book, Getting Started in Value Investing.
