Value Momentum Investing™

So, you may have heard about my very own Value Momentum Investing™ (VMI) strategy and you must be wondering what exactly is this.

Value Momentum Investing™ is a special strategy that I adapted from the regular Value Investing.

I combined the best of Value and Momentum investing strategies together and called it Value Momentum Investing™ (VMI).

My students have employed this strategy into their investing journey and have achieved anywhere from 25% to 50% returns on their portfolio.

To achieve these high returns consistently from the stock market, you will have to learn how to pick the best companies that will outperform the market. To do so, you will have to use the steps involved in Value Momentum Investing™ (VMI).

Value Momentum Investing™ is about buying the best businesses at the best prices at the best time, catching the momentum of the market!

I’ll share with you some of the steps involved in Value Momentum Investing:

  1. Identify the best companies

There are thousands of companies in any of the stock markets and I only buy the top 3% of businesses in the stock market.

The best companies are the ones that we know will increase in value over time.

So, how do we go about identifying them?

Here are some pointers:

  • The company must have a history of consistently increasing sales revenue, earnings and cash flow from operations
  • The company must have a sustainable competitive advantage that protects it from its competitors (Wide Economic Moat). This stems from brand monopoly, high barriers to entry, high switching costs, network effect.
  • The company must have a low conservative debt
  • The company must have a strong cash position
  1. Invest when the stock price is undervalued / fairly valued on the uptrend
  2. Exit investment when fundamentals deteriorate, overvalued and/or downtrends

Once you find a good business, you only invest when the stock price is selling at a discount to the fair value; when it’s undervalued or it’s fairly valued and on an uptrend.

If you take a look at any good business, you can see that over time in the long run, the company will increase in value.

An example will be Procter & Gamble (P&G)

P&G is a fantastic business with a wide economic moat and a sustainable competitive advantage.

The green line in the chart represents the intrinsic value of the company. In the long run, you can see that it always goes up. However, in the short term, the stock price fluctuates based on the emotions of the market.

In the short term, during a crisis, the price went below the green line, making it undervalued. And when the market is optimistic, the price went up and the stock became overvalued.

Prices tend to be overvalued and undervalued during market cycles. So you will have to know what’s the true value of the company and you only buy when the price is selling at an undervalued level – when it’s below the green line. You do not buy when the price is overvalued.

Let’s take a closer look at the charts, shall we?

The price is undervalued at the beginning of the charts because of the financial crisis and you may have thought that it was a good time to get in there. But what would have happened?

Yes, it’s cheap but the cheap get cheaper. This is because, on a downtrend, the low gets lower!

Besides just looking at valuation, we also have to read the trend of the market – and we only want to enter when it’s undervalued and on an uptrend.

And when it starts to get overvalued and on a downtrend, we can quickly exit, lock in our profits, wait for it to crash, get undervalued again, start a new uptrend and buy-in again.

By learning how to time your entries, you can maximise your returns and get returns more than most people who just simply buy and hold the stock.

This is how you maximise your returns with my Value Momentum Investing™ (VMI) approach.

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