Stocks and shares are the bread and butter of most investors’ portfolios. Whilst many so called ‘day traders’ spend 15 hours per day scouring the stock markets for companies that may (or may not) produce robust capital appreciation in the short term, others prefer a steadier approach whereby their shares’ steady value increases and annual dividends will give them a safer return over time. Besides the fact that you can save yourself from many sleepless nights, studies have shown that, for most people, long term investment in good stocks is the best way to increase your wealth.

 

‘Value Investing’, which is essentially the philosophy of putting your money into undervalued stocks and holding them for long periods of time, has proven to be the best way to make solid gains throughout one’s life. This kind of money management technique has been the intellectual cornerstone of the some of the world’s richest investors; including Berkshire Hathaway Chairman Warren Buffett. During his 61 year career in business and investment, Buffett has amassed a rather respectable USD 44 Billion by picking companies which are cheap, reputable and have a solid brand. A key aspect of Buffett and his company’s approach to buying shares is looking at “the value of the company before you look at the share price.” Assessing a company’s value is the real trick to picking good stocks. When an investor finds the right company they don’t have to worry so much about short term fluctuations in its share price, they can simply hold it for a long period of time and gradually their assets will gain value.

 

But as with a speculative bet on a horse race, if you back a winner and hold onto your proverbial betting slip, you will be able to cash in eventually. Of course, not all companies become more valuable over time. Some lose their market share, investor confidence and even go completely bust. So the trick in value investing is to find the hidden gems that will build your financial fort. The key questions to ask yourself are what kind of stocks should I buy and where should I buy them? 

 

Although there is no way of knowing exactly what to buy, there is one phrase that investors use time and time again, ‘only invest in something you know a lot about and understand’. If you are an IT specialist, the chances are that you are more likely to have instinctive feelings about the future of smart phones and which firms will make the most money in this sector going forward. Likewise, a person who knows a lot about energy, mining, retail and so on should be able to make a more informed prediction about future economic circumstances. Play to your strengths and always do your homework. 

 

When you have decided which companies you are able to properly evaluate, you need to utilise a proven model of share price analysis to find out if the going rate is cheap. There are countless methods out there to evaluate the intrinsic value of companies relative to their share price. Many of them are based on rigorous number crunching and complex mathematical models. Perhaps the most common and straightforward indicator, however, is the Price to Earnings ratio. This basic measurement centres on the principle that the higher the P/E ratio is, the higher investors are paying for the stock and therefore the less value they are getting. For those less numerically inclined there are many great publications written by successful investors which offer useful advice. One timeless classic is Wall Street wizard Peter Lynch’s book Beating the Street in which he outlines some practical ways to pick up great stocks. Whenever you find yourself scouring the stock markets, remember that like anything else in life, investing requires time, patience and an incredible amount of dedication. 

 

In terms of where to invest, the good news is that nowadays we can invest in companies all over the globe. If you know what to look for, there are still some fantastic stocks to be found in the developed markets of North America and Europe. However, the case for putting your money into the emerging economies is becoming more compelling by the day. You won’t have to look far to find reasons to buy shares in Chinese, Indian and Brazilian companies. According to Professor Burton Malkiel, one of the world’s most respected economists, “investors need to think of these markets as being an essential part of any diversified portfolio”. In his analyses of future performance, Malkiel looks at three major factors- “debt, demography and diminishing natural resources”. Based on these elements, value investors should definitely look for good assets around the world to maximise future returns.
 

However, in order to lay your path to riches, you will need to do more than just select and hold good stocks. Sensible speculators, also look for companies that will pay consistent and sizable dividends. By receiving annual dividends on your investments, either in cash or share options, you are essentially being paid to keep your stocks. Canadian tycoon, investment manager and T.V personality, Kevin O’Leary, is one such big name wealth manager who firmly believes in dividend deals. His advice to investors is simple; “Never, ever, buy a security or a stock that doesn’t pay a dividend!”. He rightly points out that if an asset is “not returning cash, it is purely a speculation”. Whilst capital appreciation on your stocks is obviously desirable, there are no guarantees when it comes to stocks. Therefore, dividends are essential because they act as a safety net against losses in your asset’s value.

 

So finally, you know it pays to go long term, to conduct a vast search and to preferably own something with a juicy dividend. What about that rainy day, somewhere in the distant future, when you feel the need to sell your stocks and free up some cash? The final word here has to go to Forbes’ Investment Strategies Editor, William Baldwin, who’s philosophy is to “hang and to winners and sell off your losers”. And furthermore, when you start to consider when the best possible time to sell will be, remember Baldwin’s advice- “the best holding period is forever”! 

 

Markets in around the world have gone higher in recent weeks after announcements from both the European Central Bank and the Federal Reserve. The ECB sent European markets soaring after the organisation’s president, Mario Draghi, announced a wave of bond buying to reduce the cost of borrowing for the Eurozone’s cash strapped member states. Days later Federal Reserve Chairman Ben Bernanke officially launched its latest stimulus program. The move, known as ‘QE3’, aims to stimulate the stagnant US economy and free up credit. Whilst markets have slowed down from their earlier rallies, investors are expecting a more stable trading environment over the coming months.

 

The slowdown of the Chinese economy in 2012 is continuing to impact upon investor confidence in mining and commodity based stocks. Most of the big mining companies are trading at very historically cheap prices as investors feel pessimistic about future demand from China, Europe and North America. In September, the Australian Bureau of Resources & Energy Economics slashed its outlook for expected earnings from mining exports by 10% for the financial year to June 2013.

 

Apple Inc’s share price rally has continued in the last month- going over $700 per share. In August, Apple’s share price rose to make it the most valuable publicly traded company of all time. Following the successful outcome of its legal dispute with Samsung and the announcement of the new iPhone 5, the company still looks very enticing in comparison to the wider sector.

 

LDK Solar Company Ltd has seen its share price plummet to historical lows recently after a gloomy outlook for the sector took its toll on investor confidence. The solar installations giant has seen significant pressure on its profit margins this year as well as a string of tariffs imposed by the US government hitting hard. For risk taking investors who see a bright long term future for solar energy, now may be a good time to add LDK to their portfolio.

 

Shareholders of Tyco International Ltd have approved the management’s proposal to divide the company’s industrial conglomerate into three parts. According to Reuters, the company’s operations will be split into; North American residential security, flow-control products and services, and fire and security. It is hoped that the company will be better able to improve growth and add more value for investors in the future.

      

 

 

Chinese Yuan - GB Pound

 

Chinese Yuan - Euro               

 

Chinese Yuan - Japanese Yen

 

 

All eyes are on the euro now following the ECB’s attempts to stabilise the region’s credit markets. In September, the currency hit 4 month highs against both the yen and the dollar. But with the turbulence of Spanish bond yields and uncertainty about the Eurozone’s long term future, the recent rally may well be short lived. The dollar remains weak against a basket of currencies after the Fed’s announcement of QE3. Rumours are circulating that the Bank of Japan are looking at similar easing measures so appetite for the yen is somewhat mixed. Currency markets are looking increasingly difficult to predict for the remainder of 2012.

 

Quantitative Easing by the fed has increased concerns about inflation and subsequently, investor appetite for precious metals has improved. Gold prices hit a 7 month high in September and there is a strong chance that Silver will follow suit in the coming weeks as the dollar remains weak and speculators favour hard assets over currencies. Grain prices have modestly extended on the big gains of the last couple of months.