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Simplicity Wins

A simple investment approach is better than a complicated one, especially when the global turmoil looks deep…

It’s the season for simple solutions. A few miles from my office, a 74-year old man sat on a 12-day fast. He has a simple solution for the problem that everyone had declared systemic—and the solution is so simple that it could be the only one that works.

At Value Research, we like simplicity. I believe that of all the media outlets that give you any kind of advice about investments, we are the only one that places simplicity and obviousness at the heart of our approach. An investment approach that is simple and understandable is better than a complicated one, even in the unlikely case of the complicated one giving better returns.

This focus on simplicity is especially important now, when the global markets are in great turmoil. This turmoil is deep and will last for a long time. One of the reasons is that it’s not a passing crisis. It is a basic realignment of the way the world economy works, and it could be years before it runs is course. Hence you don’t have option of sitting on the sidelines, waiting for the storm to pass, as you probably did in 2008-09. If you want to make your money grow, you have to invest.

That’s where simplicity comes in. The cover story of this issue identifies stocks on the basis of a simple criteria — companies with a proven track record of withstanding an economic slowdown. The last five years look like a full market cycle given the boom and gloom. These companies were able to grow their revenue and return on equity in each of the past five years.

Our focus on identifying the right investments wouldn’t be much use to you if it was limited to the occasional cover story, and it isn’t. We have revamped the Stock Ideas section which in many ways is the heart of this magazine. Each set of Stock Ideas has been revised to factor in timeliness into the screening process. It starts with filtering good companies at reasonable prices. How? That’s where we come in, at least for the part about identifying good companies. The reasonable prices have been taken care of by the market turmoil.

These Stock Ideas are: growth at a reasonable price, dividend stocks, and discount to book value and attractive bluechips. Each of these is a different way of filtering out investment-worthy stocks.

In our fifth anniversary issue of Wealth Insight (June 2011) we had identified companies with deep moats. Based on your feedback, we have introduced an update on those companies to help you keep track of their status. As always with our publications and website, the final goal of the exercise is not to hand you a list of stocks which you can then plug into your trading screen, but for it to be a learning experience. We hope that the analyses and articles that we write will be as useful to you as the actual stocks we identify because they will take you through the process and the logic of identifying investments.

In coming issues we plan to provide more approaches to identify attractive mid- and small-cap growth stocks. We are also working on Stock Ideas based on the investing principles of great investors. These shall rotate between Warren Buffet, Peter Lynch, Martin Zweig and Benjamin Graham.

It goes without saying that we never have and shall never talk about technical analysis and speculative investing. This is the magazine to pick up for long-term, fundamentally guided investing, and nothing more.