Beat the Market: The Smart Investor’s Guide to Low-Risk, High-Return Stocks
By Charles Burrows High Net Worth Client Advisor @ Empire Wealth Management
If you’re tired of overly complicated investment advice and just want a simple, clear strategy to grow your wealth with less risk — you’re in the right place. Over the next few weeks I will be sharing all my insider tips and tricks to help you get the most out or your savings and investments.
I’m Charles Burrows, and for the last 20 years, I’ve advised hundreds of high-net-worth investors on how to grow and protect their wealth. As the CEO of a global wealth management firm overseeing more than $200 million in client funds, I’ve spent my career designing investment funds and strategies worth over $1Billion.
In this article, I want to cut through the noise and give you a practical, proven framework for identifying Undervalued Stocks with Strong Upside and Limited Downside — the holy grail of investing and the reason Warren Buffet was so successful.
This isn’t about gambling on the next hot stock, following some YouTuber’s tips or trying to get you to sign up to a day trading academy. It’s about giving you easy to use real tools and methods that the pros use to tilt the odds in your favor — without needing to be a financial expert or glued to your screen watching charts and news 12 hours a day.
Let’s get into it. How can you buy a dollar for 50 cents?
First of all you must realize and that when you are buying a stock you are buying a business. If you were buying a restaurant in your local area the first questions you should ask are:-
Whats the asking Price? (Stock Price)
How much Income do you make a year? (PE Ratio)
What is the value of your assets minus liabilities? (PB Ratio)
Lets imagine that the seller tells you they want $5,000,000 for their restaurant
They make a income of $1,000,000 a year
They have $2,000,000 in assets
Well now you know that they are selling you their business at a price that equates to 5 times the earnings and 2.5 times the book value. Thats a great start you know what the price is and your ratio to the earnings and book value but how do you know if thats a good deal? Well next you should check the historical revenue and asset value versus historical price to see if it’s a good deal compared to previous valuations. Then you should check the other restaurants in the area to see what they are selling for. If the other restaurants are selling for 10 times earnings and 5 times book value you may have found yourself a bargain. We can apply the same process to stocks using the PE (price to earnings ratio) and PB (price to book) ratio.
Let’s use Tesla stock as an example. Is Tesla a good investment at todays stock price?
Today Tesla is trading at a PE ratio of 173.42x !!! Since 2021 it has traded as high as 688x and as low as 33.96X
From a book value perspective PB we see the a similar story trading as high as 36x and as low as 8.7x.
So if we were to only use the concept of value looking to buy this stock at its lowest earnings ratio and book ratio how would we have done? Drum Roll…………….178% in 200days!!!! From Q4- 2022
Ok so maybe we got lucky! So what would have been the result if we applied the same value based approach again in Q1 2024 when it showed similar ratios? Drum Roll……………..197% in 259 days…oh,so maybe lightning can strike twice!
There are extra benefits to buying stocks at low PB and Low PE ratios. In the event of a market crash stocks that are trading at inflated valuations crash hard, but stocks that are trading at huge discounts don’t get hit so hard as they are already undervalued so your downside risk is significantly diminished whilst your upside potential can be exponential.
Another benefit of making your investment decisions based on value is that it will also serve as a guide as to when to sell the asset. My rule typically is to buy a asset under its average fair value and sell when it gets back to its fair value. This avoids the guess work and gives you a clear path of when you buy and when you sell. Minimizing risk, giving you peace of mind that you have a actual entry and exit strategy.
Although using PE and PB ratios is a great way to find good value and can serve as a simple way to have a relatively good approach to buying stocks there are some caveats. When you filter for good value you can find hundreds sometimes thousands of opportunities so you will need to be able to boil down your stocks and pick the very best what I call HIGH CONVICTION stocks.
You can enhance this strategy by adding other layers of analysis such as the companies profit margins, increasing or declining employee head count, addressable market, and more. In my next article we shall look at some additional data points that we can use to help you reduce your options down to a select few very high conviction stocks.
If you would like to understand this concept in greater detail watch my in-depth video on youtube that not only looks at many other trades like this where we have made huge returns on low risk major cap stocks but also looks at the current market and how it is dangerously over valued it is.
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Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice, investment advice, or a recommendation to buy or sell any securities. Past performance is not indicative of future results. Always consult with a qualified financial advisor or professional before making any investment decisions. The author and Empire Wealth Management are not responsible for any losses that may arise from reliance on the information provided.
We will be hosting a investment seminar showcasing our stock investing strategies and our protected fixed income strategies that pay 10%-20% a year with monthly cash dividends. It will be a relaxed event with good food and drinks. The events will be held in Panama City and Boquete at the end of July. To book you place at the event just click the link and sign up. We have limited space so get your seat while you can!
Whatsapp: Charles Burrows +507 6454-4415
