"He who lives by the crystal ball soon learns to eat ground glass." - Edgar Fielder | | - This week's 5-star investment idea
- How to set and use investment goals
- British American Tobacco - More than just an income investment?
- Investors outperform when they ignore siren calls
- Keynes' investment strategies
This week's 5-star investment idea
Starting this week I've updated the stock ranking system which the Defensive Value Report uses. It's now a more user friedly 5-star system as used by Amazon and many other sites. The underlying mechanics of the system are the same but now I'll be talking about 5-star stocks and 4-star stocks instead of saying that the stock has a rating of 491, which some readers found fairly meaningless.
Of the 200 or so stocks rated every month only 40 or so get the top 5-star rating and the 5-star zone is where all of the Defensive Value Report's stock picks come from.
Carillion (CLLN 277p) is a FTSE 250 listed buildings and infrastructure company which does everything from design and construction through to on-going asset and facilities management. The company has continued to grow throughout the recession and has managed to raise its dividend in every one of the last 10 years. Despite this success, the stock looks cheap on various measures:
- Current share price is around 11 times the average earnings of the last decade which is much cheaper than the market average.
- Earnings growth has been around 10% a year in that time which is well above the market average of 5%.
- The dividend yield is around 6%, well above the FTSE 100’s which is around 3.5%.
To see the complete list of 5-star stocks each month plus every trade in the model portfolio, click here to try the Defensive Value Report for free.
New blog posts
How to set and use investment goals
Earlier this week I wrote a short piece on the importance of having and using investment goals. Once an investor’s goals are set they can be a powerful tool in the fight against emotional overreaction.
British American Tobacco – More than just an income investment?
Most investors have heard of this company, but generally it’s thought of as an income investment because of the good yield and steady, reliable payments. But past results have been so good that maybe it’s time for everybody to take a look.
More from around the web
Investors outperform when they ignore siren calls
I spotted this article about Knut Kjaer, former head of the Norwegian sovereign wealth fund, a few days ago and thought you might find it interesting. It’s a summary of a paper written by Kjaer in which he outlines the benefits of a long-term outlook (something I have written about over and over again).
In the paper he basically says that long-term investors should 1) institutionalise contrarian behaviour, 2) build a robust portfolio to harvest returns from many sources and 3) have a close alignment between asset owners and managers (he also mentions illiquid assets for those interested in private equity).
I think it’s safe to say that the approach used in the Defensive Value Report covers all three of those bases.
Keynes’ investment strategies
In this short and interesting video, Dr David Chambers from Cambridge University discusses Keynes’ investment strategy and how it changed after the crash of the late 1920s and early 1930s.
In short, Keynes, as a leading economist both then and now, thought that he could predict the economic cycle by looking at economic data. Unfortunately he didn’t see the crash coming (which must sound familiar for economists today) and changed from a ‘top down’ approach to a ‘bottom up’ approach of picking good companies and sticking with them.
Even though Keynes’ approach is different from what I would call defensive value investing, it’s still interesting to see a great economist saying that investing based on economic market timing is incredibly difficult.
Thanks for reading, and as always if want to get in touch just reply to this email.
Yours sincerely,
John Kingham, Editor of UKValueInvestor.com and the Defensive Value Report
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