If you’re investing in the stock market, the first thing you need is a clear goal. The second thing you need is an effective strategy for achieving that goal.
By John Kingham
As an investor, my goal is to build and maintain a portfolio of shares which generates more income and growth than the FTSE All-Share, but with less risk.
To achieve this, I follow an investment strategy called defensive value investing, which I’ve gradually developed since 2011.
I use defensive value investing to manage both my personal investments and the UK Value Investor portfolio.
The strategy has three pillars:
- Buy above average companies at below average prices
- Sell when a company or its price are no longer better than average
- Diversify the portfolio across many companies and sectors to reduce risk
If you’re relatively new to investing in individual companies, here’s a detailed overview of the strategy:
At the other extreme, if you want to know almost everything there is to know about defensive value investing, then you should buy The Defensive Value Investor, a book I wrote which describes the whole strategy in exhausting detail and with many examples.
The middle option, which doesn’t cost anything, is to read some of the articles below:
Step 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
Step 2) Avoid value (yield) 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