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Uses & Misuses of Ben Graham-Style Investing

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This week’s AAII Weekly Digest highlights these “must-read” AAII articles:

  • Uses and Misuses of Ben Graham-Style Investing: Deep value investing has outperformed the market averages over long periods of time, so why wouldn’t everyone with a long time horizon embrace it? While all investors strive toward essentially the same goal—to make money in the market—their paths may differ considerably. The historical success of an approach means little if an investor cannot understand or embrace the underlying drivers of success. While Benjamin Graham is considered the father of value investing, it turns out that Benjamin Graham-style investing may be appropriate for a relatively small subset of the investment community as it requires an unusual willingness to stand alone, persevere and look foolish.
  • Investing’s Odd Couple: Value and Momentum: For value investors, the sweet spot in investing is being able to buy an undervalued stock right before its value is recognized by the market and just before its stock price begins to take off. But how can a value investor tell when a stock is in the sweet spot? The answer is to identify stocks with good value that are just starting to exhibit good technical/momentum characteristics.
  • Value Averaging Spreadsheet: While the goal of most investors is to buy low and sell high, some of us have the uncanny knack of doing just the opposite—buying at the very peak and selling at the very bottom. The market moves up and down, and very few investors have demonstrated the ability to consistently predict where it is headed over a long period of time. One way to counteract the fluctuations of the market, thereby reducing timing risk, is to follow a “formula strategy” that mechanically guides your investing. One such strategy is value averaging, where you set the value of your investment holding to increase by a fixed amount or percentage each period. This spreadsheet is designed to help you implement your own value averaging strategy
  • Are All Earnings Surprises Equal?: Statistics show that companies are generally beating their EPS targets with ease, but we are not really getting positive stock price reactions from these positive earnings surprises. Positive earnings surprises occur when actual reported earnings are significantly above forecasted earnings per share. Negative earnings surprises occur when reported earnings per share are significantly below the earnings expectations. Often, missing the analysts’ estimate by a few cents can send a stock price down sharply, while the opposite happens with an earnings beat. AAII’s president, John Bajkowski, discusses the findings of noted investor and author David Dreman and the impact of earnings surprises on stock prices.

Our Member Question for this week is:

Would you change banks or financial providers for better services with financial technology (FinTech) such as robo-advisers?

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Last Week’s Results:

How much do you trust the financial services industry to do what is in the best interest of its clients?

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Click here to learn about the results of last week’s AAII Special Question.

AAII Model Portfolios

aaii-model-portfolios-iconFor nearly 40 years, AAII’s major emphasis has been on investment education and information. Our preferred function has been to prepare individual investors to be their own advisers, and to provide the necessary data and systems to help them in that effort. Over the years, however, we became increasingly aware that many of our members wanted more specific help. We responded to this need by creating the AAII Model Portfolio series. They provide an intermediate level of support—not a complete stock advisory letter, but some specific guidance for individuals in developing an effective investment program.

The AAII Weekly Digest is one of the many benefits of AAII membership. To learn more, consider a risk-free 30-day Trial AAII Membership to start becoming an effective manager of your own assets.

 

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