This course will take you step-by-step through a simple but comprehensive strategy for investing in the stock market.
The strategy is called defensive value investing and that’s for obvious reasons: it combines elements of both defensive investing and value investing.
Definitions
Defensive investing is about buying the shares of high-quality companies that have been around for many years, paying and steadily growing their dividends. It also goes beyond stock selection and requires some thought about how a portfolio is structured, such as how many companies it should hold, which industries and countries those companies operate in, and so on.
Value investing focuses primarily on whether or not a company’s shares represent good value for money at their current price. A value investor would say that even if you found the most defensive company in the world, it might still turn out to be a bad investment if you pay too much for it.
Defensive value investing combines the two, and is focused on buying relatively defensive companies at value for money prices.
The defensive value strategy in this course is based on a series of rules of thumb, and those rules turn the underlying theory into a simple and practical checklist.
I’ll cover enough theory so that you can clearly understand why each part of the strategy is there, but this is primarily a practical course to be used as an aid to real-world investing, rather than just as an interesting read.
To help you see how this strategy can be applied in the real world, I’ve included many examples of actual investments I have made in recent years.
How the course is structured
This is very much a step-by-step course and each lesson builds upon the ideas laid down previously. The course is divided into three parts:
Part 1: Analysing a Company’s Accounts
Most investors like to think about which company to buy next, so we’ll cover that first. To begin with, we’ll go through how to select companies based on their past financial results, such as historic revenues, earnings and dividends. This is an important first step because a company’s financial track record says a lot about how defensive that company might be.
What we’ll be looking for here are companies with long and unbroken records of dividend payments, strong and consistent growth, good profitability and robust balance sheets.
We’ll also begin to look at whether or not a company’s shares might be good value by comparing their current price against the historic earnings and dividends.
Part 2: Analysing a Company’s Business
Having found a good company at an attractive price, our next step is to build up a general understanding of what the company does and how it does it.
After that we’ll look at whether the company has any durable competitive advantages and whether it might be a value trap (i.e. the company has some problems which mean it isn’t worth as much as its past results would suggest).
The end of the company analysis process is marked by the final decision to buy or not to buy, but only if you’re willing to invest for years rather than weeks or months.
Part 3: Managing Your Portfolio
Once you’ve bought a company there are many other decisions to be made, such as what to do if the share price shoots up, what to do if the share price crashes, or what to do if a company announces bad news such as a dividend cut.
Looking beyond each individual holding, there are many other things which need to be considered at the portfolio level. These include how to make sure your portfolio is sufficiently diversified, how and when to make changes to your portfolio, and the importance of continued learning and improvement.
We’ll cover a wide range of these and similar topics in the third part of the course.