What is it

When you buy something, say a pair of jeans, you use what you know to assign a value.  For example brand new levis 407 boot cut might be worth $80 to you.  When you see them on sale in Winner’s for $50 the purchase seems like a good value.  Given it would be hard to find a pair for less than say $70 the price for that design, quality and brand leads to the value decision.   Purchasing equity in a company is basically the same thing.  The cost per share is just an indication of the value of the equivalent piece of company represented by 1 share.

How about an example?

Let’s say kerrzone.com has issued 1 share (and one share only).  If kerzone’s equipment and other real assets were estimated to  worth $10,000 and the share was being sold for just $1000, there would be a strong argument that this was a great value investment.  Arguably you could buy the share and sell all the assets and make $9000 clear just like that.  The caveat of course is the worth of the assets – could they really be sold for the stated $10,000?  What if the sale price was actually $100, whoops!

Remember in the real world the company’s value is complicated by things like intangible assets (intellectual property, worth of the brand, future profit growth, etc)

So how do I pick these value investments?

Talk about a loaded question.  If there were a simple answer investors in the equity market would all be doing fine.  The short answer is hard work – analysis.  There is no other way and there is no exact process or method to say the analysis is sure fire.  That being said though there are plenty of examples where hard work has gotten results – more so that where luck has succeeded. 

MORE TO COME

In future posts I will share some of the analysis methods that work, why they work and most importantly proof that they work.