Do you know the story of the person
looking under a street lamp for a coin that he lost?
A passerby offered to help and asked where he lost
it. The answer he received was that it was further
up the street but there was no light there to search
It is much the same in the stock
market. People look for value amongst the arcane
models and methods put out by academics and copied
by the investment professionals. But they are looking
in the wrong place.
A key quote from Warren Buffett explains
how he approaches this.“Unless we see a very high
probability of at least 10% pre-tax returns," he
wrote, "we will sit on the sidelines.” You
might be thinking, “Wait a minute, Buffett gets
a much higher return than this.” You would be
right in thinking this.
the Free Demo!
are searching for value in terms of trying to
answer questions such as whether or not a particular
stock is 30 percent undervalued or 20 percent
overvalued. Then they wonder why their performance
is mediocre at best. Remember that around 70-80
percent of fund managers, the main people who
use these methods, actually under perform the
The problem is that they are confusing
various static definitions of value with value
in terms of performance. No wonder finding undervalued
stocks is a mystery for most people.
The aim of successful
investing boils down to one thing—being
confident that you will get a healthy return.
In other words value for an investor needs to
be tied to future performance and not whether
it appears to be a bargain at the moment.
The point is that this is really his
worst case scenario. It is like locking in a minimum
of 10 percent and leaving open the possibility of
much higher returns which in Buffett’s case
is an average of over 20 percent per year.
In other words, a true undervalued stock
is first of all a quality company and secondly it
is selling at a price so that under a margin of safety
you can be confident of receiving a strong return.
This is precisely what Conscious Investor®
does. It starts by identifying great companies in
terms such as management performance, strong and consistent
growth and minimum debt. Once you have decided on
a particular company, the second step is to calculate
the expected return over your investment period under
your margin of safety. For example, you can calculate
your performance over the next five years if the growth
in earnings dropped by 50 percent from its past rate.
In this way Conscious
Investor helps you hone in on companies that
give you true value as an investor.