Cheap stoks part I

Finding the next market beating portfolio does not need sophisticated analysis nor does it involve losing sleep over which way interest rates are headed next. It is entirely free of this so called mumbo-jumbo.

Instead, all it requires is finding out which stocks are trading the cheapest relative to their peers and sticking with them for a few years. Yes, that’s all there is to successful investing.

Portfolio of stocks that are trading at the cheapest valuations when measured on conventional valuation parameters like price to book value and price to earnings have shown remarkable consistency in attaining market beating returns for a sufficiently long period of time.

But why look for cheap stocks? Will any good stock not suffice? Certainly not!

Buying stocks should not be different from buying things on sale in a supermarket or waiting for the car companies to offer special incentives. The time to buy stocks is when they are on sale i.e., selling cheap, and not when they are priced high because everyone wants to own them.

Stocks selling cheap tend to give better returns over a long period as compared to those selling at expensive valuations, all things remaining same.