Dr Ipsofacto. Of course, this being a Ben Graham type of thread, you might want to read Graham's "The Intelligent Investor".
One of the biggest issues you will face as a medical doctor who tries value investing --- and I may very well be talking to myself about myself as well here --- is the issue of patience.
Obviously I don't know your specific personality, so I only surmise a general case. Doctors and med students lead busy lives. The feedback from what they do is quick or relatively quick. Students take tests; the results are posted (or however results are disseminated these days -g-). The solution to a medical problem might be a drug or surgery. Quickly the results are known. On to the next patient.
A process for finding stocks is developed. A stock that falls within the screen is studied. Studied -- whatever that means: annual reports read, the 10k and quarterlies and company presentations poured over and maybe management is called (Mike Burry way??); or perhaps it's less time-consuming: just a few minutes for just a few numbers (roe, p/bk, couple quarterly reports, ten-year history in addition to the screen (Paul Senior way?) The stock is bought. Now THE PROBLEM: It becomes, "C'mon, why doesn't the rest of the world see what I see, and why doesn't this stock move up?" ... Soon kibitzers in the stock market bring up a most dreaded condition... "Dead Money". "It is just too boring to hold a stock that does nothing." "You don't have enough money to be tying up cash like this." Other things show up on screens. Other guys' other stocks are MOVING. Your stock goes down! So the feeling is you must sell and try another stock or another way.
Well, jmo on why it's tough for young MD's to be value investors.
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I don't know where to get patience, but I do know that patience is a big component of value investing. You're going to find plenty of value stocks that meet your criteria. Owning them from undervalued state through to near fully-valued will be your problem (maybe is still mine) -- especially so though for you guys that have personalities that are used to quick results, being right, seldom making errors or being wrong. And who, starting out with lots of debt but with high expectations, are hungry for money.
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For screens, I have several brokerage accounts, and all but one have preset "value" screens that are updated frequently. And they also have screens where the customer can select from various parameters. Microsoft, I'm told has a good free screen. I've used Kiplinger's free screen. They're all a bit different in what they allow or what they include or exclude.
I'm not a fan of PEG. The reason is it requires estimates of future growth (Is it five years out?). Similarly I don't use discounted cash flows.
I like price/sales but only to compare the company to itself or to its competitors. So I don't screen for p/sales. Some companies that are hugely profitable for each dollar of sales they generate, don't have large sales. So doing a p/sales ratio, their price/low sales might not show up. Whereas some stocks such as grocers, with their thin profits on each sales dollar - but with huge sales, might show up on a low p/sales screen. That's okay, but maybe misleading or distracting.
I'll screen for p/b and roe. I'd say always, but I guess there must be some exceptions.
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I own FLY and HUM.
FLY: Sometimes the stocks in a sector move together. When the sector is down, I like to buy a package. I find it too hard to determine "the best" downtrodden stock. Buying a package reduces gains compared to if money were able to be concentrated only in the one that later becomes the best mover. OTOH, a package mitigates business-risk with any one particular stock (company). (But doesn't reduce market risk-- the package of stocks can still decline in a market or sector decline). My point: I have FLY, WLFC, GLS. So when you find one stock that meets your criteria, you might check others in the sector. You might find one (or more) that you like better.
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We have found on this thread that we hold varying opinions on what a value stock is. On some things we agree, but on the process of finding a value stock, or what we define for a value stock we buy for ourselves, we do not agree. I have concluded that if three people post here that they are buying a stock that they believe is a value stock, then that stock has a good shot of being a winner. The reason is that three people come at it from three different perspectives with maybe three different criteria and yet make the same conclusion, and put their money on it.
Also, as moderator I welcome you to the thread. Your stock ideas are encouraged. After all, it is possible you could turn out to be another Dr. Burry. Man, we would welcome that! |
