Sponsored by Reid Green & Co
Please read this entire article because you will find how even the most modest value retail investor can create his own competitive advantage in the market place from the simple understanding of these facts.
We would like to begin by saying that finding obviously mispriced stocks or undervalued companies, while very doable is by no means easy. Often the obvious bargains are not around for long as they are quickly competed away by the legions of funds, analysts, activists and insiders who understand and continuously hunt for value.
However it is possible to find and profit from those obvious but temporary bargains, as well as the ones not so visible to the naked eye, if one possesses, creates and maintains an investment advantage. Or better yet a confluence of advantages.
A good way to gain an advantage is to do opposite of the crowd. If they lower their standards, increase yours, if they become impatient, become more patient, if they seek more information, seek better conclusions.
Reid Green & Co seeks and advantage otherwise known as an edge in 3 different ways. Firstly, gaining unique insights derived from a better approach to analysis, secondly understanding how opportunities are created and knowing where to look and finally which brings us to one of the most powerful, and penetrating but overlooked advantages – having a longer time horizon than the competition.
The best way to introduce this topic is demonstrate how much the average stock holding period has declined in the last 65 years.
According to the New York and London Stock Exchange the average holding period for a stock has declined from 8 years in 1940 down less than 1 year in 2005. The World Bank estimates it is now closer to 4 months.
So as the general investing population develops an ever-decreasing time horizon, Reid Green & Co maintains a long-term orientation focused on values, which are outside of the average investor’s time horizon.
Reid Green & Co typically thinks about a company’s value over a 1, 3 and 5 year period, and compares that value to today’s stock price, to look for substantial mis-pricings.
To demonstrate Reid Green & Co’s perspective on time horizon, we are going to use an example.
An investment idea we covered for our subscribers in 2016, when the stock was trading at a 50% discount to its book value.
Although Glencore announced it would slash its debt by 30%, monetise its non-core assets and reduce its operating costs over the next 12 – 18 months, the market was gripped by its fear by the short-term outlook concerning the record low oil prices.
The value investor does not necessarily have to wait for market crashes or corrections. Thinking about long-term values when others are obsessed with the short term should be sufficient to gain an advantage.
How can you start to ethically exploit this advantage for your own investment gain?
You can take the lessons from this article, read it, re-read it and then find a way to start looking for situations where you understand the long-term values of a company better than the market does. Or… you can find a source who sends you investment ideas which already meets this criteria, such as Reid Green & Co.
Founded in 2016, Reid Green & Co is a Value Investing research firm which publishes and distributes reports on deeply undervalued companies, which are listed in the UK and the US.
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