“All the real money in investment will have to be made—as most of it has been in the past— not out of buying and selling but out of owning and holding securities, receiving interests and dividends therein, and benefiting from their long-term increases in value.” – Ben Graham, The Intelligent Investor, 1949
“Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.” – Ben Graham, The Intelligent Investor (1949)
By John Kingham
I started this website in 2007 and since then I’ve written hundreds of articles about value investing and a 300-page book.
To be honest it can all get a bit confusing, so I put this page together as an introductory guide to my version of value investing, which I call defensive value investing. Hopefully you’ll find it useful.
The basics of investing
Before you can start to invest in individual companies (which is what defensive value investing is all about), you need to know at least a little bit about the basics of investing. This includes basic knowledge of things like how the economy works, how to read company accounts and how to choose a stock broker.
If you’re new to investing then here’s a list of resources which you might find useful:
The basics of defensive value investing
At its heart, defensive value investing is a dividend growth investing strategy.
The aim is to invest in a diverse group of dividend-paying (and growing) companies with attractive combinations of growth, yield, profitability, balance sheet strength and other factors.
Defensive value investing has four goals:
- High yield – The overall dividend yield of the portfolio should be higher than the FTSE All-Share’s yield
- High growth – The total returns from the portfolio (dividend yield plus capital gains) should exceed the FTSE All-Share’s total returns over five years or more
- Low risk – The portfolio should be less volatile than the FTSE All-Share and suffer smaller drawdowns over five years or more
- Low effort – Only make one buy or sell trade each month
To achieve those goals, the strategy follows three basic steps:
- Buy companies that have an attractive combination of dividend growth, profitability, balance sheet strength and other factors, and buy them when their share prices are relatively low
- Hold a diverse group of around 30 such companies in the portfolio
- Sell companies when their share prices are relatively high or when their fundamentals (profits, balance sheet, etc.) are no longer attractive.
These basic steps are translated into action using a variety of tools, from a unique stock screen to spreadsheets and checklists.
- You can access most of these tools on the free resources page. But before you use them, you should read at least some of the articles below.
Some more detail
Here’s a far more detailed overview of the defensive value investing strategy contained within a single blog post:
Even more detail
If you’re really serious then here’s a list of blog posts which cover most of the details of the strategy. The list covers a lot of ground, so don’t try to read it all at once:
1. Find high quality, high yield, low risk companies
- How to find shares that pay a reliable dividend
- How to find reliable, profitable dividend growth
- Fast dividend growers – How to find them
- Taking account of Return on Capital Employed
- Related update: Companies with thin profit margins often make bad investments
- The capital cycle is something every investor should be aware of
- Lessons from a highly cyclical investment
- Measuring leverage
- Related update: Factoring in the risk of excessive corporate debt
- The importance of a strong bank balance sheet
- Debt ratios and pension ratios: Connecting the dots between them
- Defensive shares – An unusual way to value them
2. Avoid value traps
- Value traps – 18 Questions to help you avoid them
- 10 Questions every stock picker needs to ask
- Looking for companies with a durable competitive advantage
- The pros and cons of building an investment story
3. Build a diverse portfolio
- How to start building a portfolio of shares
- 3 Components of a well-diversified portfolio
- How I’m increasing my focus on defensive sectors
- Why a diversified portfolio is easier to manage than a concentrated one
- How to manage a portfolio of shares
- 4 Rules for selling shares
A detailed guide to defensive value investing
If you want even more detail than the articles above then you’re probably going to have to read my book, The Defensive Value Investor:
- View The Defensive Value Investor on the publisher’s website
- View The Defensive Value Investor on Amazon