While the stock market offers open-ended opportunity for wealth creation, possibly the most tried and tested technique is that of "value" investing.
Crafted by Benjamin Graham in the 1930s, this approach has been practised and refined by numerous distinguished investors, including Warren Buffett.
Generally considered more conservative than growth investing, value strategies usually enjoy greater popularity among the private client investor base.
This may be attributable to the fact that they typically identify stocks which have a lower risk profile and thus enjoy a greater margin of safety.
The value philosophy centres upon the premise that, while the market should generally price a stock to equal its intrinsic worth, at certain times a share may become either over- or undervalued, and thus afford the potential for opportunistic plays.
In their search for such bargains, value practitioners adhere to a set of stringent financial criteria including a low price/earnings ratio, a high dividend yield, a low debt position and stability in earnings.
A stock which fails to clear a combination of these hurdle rates will not be purchased, irrespective of how promising the company's outlook may be.
For example, while nearly all non-Irish equities within the Sharetrack universe satisfy one or more of the above criteria, in aggregate none can currently be classified as pure value stocks.
This is at variance with the Irish market where, as a result of significant under-performance last year, a number of fallen angels would appear to offer excellent value, based upon the aforementioned measures. Indeed, some of the star value performers since commencement of Sharetrack include Waterford Wedgwood, Golden Vale and Boxmore.
However, the risk for you as a Sharetrack investor is that even if you are successful in sourcing stocks at variance with their value equilibrium, the market may not follow your conviction within the short time frame of the competition.
Value investing is a long-term strategy and thus time is not on your side.
Goodbody acts as broker to Boxmore.
Laura DeVoy is a researcher in the private client department of Goodbody Stockbrokers.
