Philip O'Sullivan's Market Musings

Financial analysis from Dublin, Ireland

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Book Review: How to Make Money in Value Stocks

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I worked as a stockbroker during the rollercoaster period in Irish equities between 2004 and 2011. During that time I was armed with an array of pricey analytical supports including Bloomberg, Datastream and Factset. On my return to ‘civilian life’ (!) I was shocked by how few equivalent tools are available to support the average private investor.


My initial dip into the various bulletin boards revealed a high noise-to-signal ratio, with many of them seemingly over-run by a minority of prolific posters who were usually to be found promoting obscure penny stocks within the energy sector. This led me to turn initially to the blogosphere, where I found many UK and Irish based bloggers churning out detailed analysis on stocks, the quality of which would rival many broker reports, and then to Twitter, where I found dozens of canny investors and market insiders providing high-quality real time commentary on what was happening in the markets.


Of course, excellent as these resources may be, they have obvious limitations. Chief among these are the limited resources (of which the most obvious is time) available to individual bloggers, which reduces the number of stocks that they can reasonably analyse in any great detail, and a tendency for market watchers to focus on higher profile companies. In a universe of many thousands of stocks, this gives rise to a clear danger that investors could miss out on excellent opportunities.


To help address these risks, the likes of Stockopedia are proving to be an invaluable resource in equipping investors with tools to screen for ideas. One thing I like about Stockopedia in particular is its approach to investor education, which is a cause dear to my heart. On this front, the company recently sent me a copy of their book: ‘How to Make Money in Value Stocks’ [which can be downloaded for free, provided you sign up to their educational mailing list here, or by purchasing the Kindle version directly from here], which I feel is an excellent reference point for anyone looking to get to grips with analysing companies and picking winning investment strategies. The book offers a great introduction to the various investment tactics utilised by the world’s leading value investors, and I think readers will find the links at the end of each chapter to further reading on each topic quite helpful.


However, this is not just a book about how the world’s top value investors have become so successful. It is also about equipping readers with the right mix of both quantitative techniques and qualitative insights to ensure that they can make sense of company accounts and evaluate the merits of investing in each stock, which can be supported by using the screening tools on the Stockopedia website. In this regard, I was provided with a link to Stockopedia’s page on BHP Billiton and was impressed not only by the usability of the data, but also by the range of checks that the company was subjected to, including risk indicators such as the Piotroski F-score and the Altman Z-score that are so helpful in identifying potential ‘red flags’. Another advantage of the company pages on the website is the list of peer companies for each stock, which means that if you like a sector but the name you were initially tempted by scores poorly on whatever criteria you hang your investment hat on, there’s a good chance that one of its peers might better suit your investment screening process.


To return to the book, I like it a lot. It provides readers with a compact (seventy page) introduction to proven investment tactics, allied to plenty of useful links to help further your understanding of the markets. If you’re looking for some decent holiday reading this summer, I suggest you look no further!

Written by Philip O'Sullivan

June 23, 2012 at 12:20 pm

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