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How to Value Shares and Outperform the Market

Book Description

The simplest way to make money in the stock market is to buy shares when they are cheap and make profits when their prices increase. This technique is known as value investing and is the creed of the world's most successful investor, Warren Buffett. But how do you know when a share price is cheap? This book explains in simple terms how you can develop your own UK share and FTSE100 valuation spreadsheets to calculate share and market valuations. Comparing the valuations to current market prices reveals when shares are underpriced and produces calibrated buy and sell signals. The FTSE100 system, for example, indicates the periods when you should be invested in the FTSE100 and the periods when you should not be. Since 1984 the in-periods have produced 94 times more capital growth than the out-periods. The new valuation system is the heart of this complete practical guide for managing your own investments. It shows how you should be able to double the value of your long-term investments purely through avoiding high commercial fund management fees. Using the new valuation system should help you do a lot better than this and, for example, secure a pension up to eight times larger than that provided by commercial managers. As well as providing comprehensive information about the practical and profitable ways in which you can use the new valuation system, this book is a complete toolkit for creating personal wealth through UK equity investment. It includes risk controls, tax breaks, free information sources and recommendations on the best service providers. In short this book is your first step along the road to financial security.

Table of Contents

  1. Cover
  2. Publishing details
  3. About the Author
  4. Acknowledgements
  5. Risk and copyright warnings
  6. Preface
    1. What this book covers
    2. Who this book is for
    3. Who this book is not for
    4. How this book is structured
  7. Prologue: The birth of my new valuation system
    1. Rescuing a derivatives firm
    2. The Black-Scholes formula
    3. A new valuation system
    4. Making the system available to private investors
    5. The valuation system in this book
  8. PART I. CRITICAL INVESTMENT CHOICES
    1. 1. Asset Selection – Choosing Equities
    2. 2. Why You Should Manage Your Own Funds
      1. Fund management options
      2. The impact of fees on long-term fund values
      3. The underperformance of commercial funds
      4. Better returns from a smarter approach
  9. PART II. INTRODUCTION TO VALUE INVESTING
    1. 3. What Is Value Investing?
      1. The principles of value investing
      2. Origins of value investing
      3. Traditional value investing approaches and their weaknesses
      4. Value investing and growth investing
    2. 4. Other Approaches to Investing
      1. 1. Technical analysis
      2. 2. Event-based investing
    3. 5. My New Approach to Value Investing
      1. The sources of value
      2. A five-year investment period
      3. Dividends at the heart of the process
      4. The detailed steps to determine current value
    4. 6. The Superior Returns You Can Expect From Using The System Effectively
      1. The long-term returns achieved by the ShareMaestro funds
      2. Building wealth through superior, long-term compound returns
      3. What returns to expect from a share portfolio
  10. PART III. THE NEW VALUATION SYSTEM
    1. 7. A Step-By-Step Guide to Valuing the market
      1. Input data
      2. Results
      3. The final valuation
      4. Setting up a master valuation sheet
      5. The nature of the input data
      6. The reliability of the System’s FTSE100 valuations
    2. 8. Using the System’s Market Valuations as Buy and Sell Signals
      1. Extreme signals
      2. The optimum buy and sell signals for the FTSE100
      3. Validation of the buy and sell signals
      4. The importance of the FTSE100 dividend
      5. A more difficult task than valuing the market
      6. Input data
      7. Results
      8. The final valuation
      9. Setting up a master share valuation sheet
    3. 10. Testing Different Valuation Scenarios
      1. altering inputs in the FTSE100 valuation
      2. Altering inputs in the valuation of individual shares
      3. Identifying one-way bets
      4. Value-buying rather than random-buying substantially increases your chances of success
  11. PART IV. PUTTING THE SYSTEM INTO PRACTICE
    1. 11. Medium-risk, High-return Strategy
      1. The principle of the strategy
      2. FTSE100 ETF Strategy
      3. Detailed track record of the strategy
      4. Trading the FTSE250 to get even greater returns
    2. 12. Running Your Own Share Portfolio Successfully
      1. 1. Time your entry to the market
      2. 2. Draw up a shortlist of shares
      3. 3. Select shares for investment
      4. 4. Limit risk
      5. 5. Set up email alerts for the shares in your portfolio
      6. 6. Review progress and take appropriate action
      7. Advantages of the share portfolio management strategy
    3. 13. Optimising Share Selection
      1. 1. Qualitative evaluation techniques
      2. 2. Quantitative evaluation techniques
    4. 14. Transforming Your Pension Prospects
      1. Introduction
      2. Why most young workers face pensions penury
      3. How to escape pensions penury
      4. Pension practicalities
    5. 15. Evaluating Fixed-Rate, Five-Year Cash Investments
      1. Basic rate taxpayers
      2. Higher rate taxpayers
    6. 16. Evaluating Structured Product Investments
      1. Example of stress-testing a structured product
    7. 17. High-risk, Stellar Return Strategy
      1. Covered warrants
      2. FTSE100 covered warrants strategy
      3. Financial spread bet strategy
      4. A possible modification to stop losses
  12. PART V. INVESTMENT ESSENTIALS
    1. 18. Establishing Your Investment Objectives
      1. Determining and monitoring your overall investment objectives
      2. Your other investment objectives
      3. Setting your investment targets
      4. Freeing up money for investment
    2. 19. Taking Advantage of Tax Breaks
      1. Self-Invested Personal Pensions (SIPPs)
      2. Individual Savings Accounts (ISAs)
      3. Additional Voluntary Contributions (AVCs)
      4. Financial spread betting
      5. Other allowances and planning devices
    3. 20. The Best Service Providers
      1. 1. Current account
      2. 2. Instant-access interest-bearing account
      3. 3. ISA provider
      4. 4. SIPP provider
      5. 5. Online broker
      6. 6. Covered warrants
      7. 7. Financial spread betting
      8. 8. ShareMaestro
      9. 9. ShareScope
    4. 21. Key Risk Controls
      1. Manage your own funds
      2. Do not be a passive investor
      3. Use your parachute
      4. Use stop-losses
      5. Investing in individual shares
      6. Make use of tax breaks
      7. Monitor credit risk
      8. Never put all your eggs in a high-risk basket
      9. Monitor the FTSE100 dividend growth trend
  13. Epilogue
  14. Appendices
    1. Appendix 1 – Free web information sources
      1. FTSE100 and share valuation
      2. Live share prices
      3. Stock screener
      4. Company report and accounts
      5. FTSE100 covered warrant prices and information
      6. Financial spread bet information
      7. ISA information
      8. SIPP information
      9. Best cash deposit interest rates
      10. Tax information
    2. Appendix 2 – Glossary of terms
  15. About this eBook