Cuapa Asset Management

A lot of people who invest don’t realize that although holding investments may often be better than straight cash, they may not give the greatest yield unless careful thought is made in how to purchase them. Here are a few strategies for different investments that you should consider when purchasing them.

Stocks—Value Investing

Value investing is one of the safest ways to invest in equities while ensuring a massive return over time. It has been used and time-tested by investors like Warren Buffett and Benjamin Graham, with great results.

The idea is simple: Ignore all of the technical charts of a company’s market price, since they mean nothing. Instead, focus on the basics as though you were buying an everyday business, because that’s exactly what you are doing when you become a shareholder.

Look at the balance sheet of the company. Is it earning well? How has it earned for the past five or ten years?

What about the product the company sells? Is it really a stable product to be selling? Consider that plenty of tech stocks were booming in the late nineties, simply because of the credit bubble which had formed, but that in a normal economy, nobody would need them. On the other hand, a company whose sales consist of the basics like food, oil, and metals, is usually a much more reliable long term in investment.

After determining that a company sells a needed product and has been competitive for a long time and will be in the future, and has a record of positive earnings, look at the book price, which is the actual value per share of the company that a stockholder would get if the company was liquidated today. If it is less than the market price, or only slightly above when one considers the current earnings per share, it is likely a good buy and it will maximize the return on investment over time.

Mutual Funds—Value Investing

Mutual funds don’t require much explanation. Since they usually consist of mostly equities, it is important to apply the same value investing principles as when purchasing stocks. Examine the holdings of the mutual fund, and if there are too many overvalued stocks in the company compared to the fund price, you should avoid investing money in the fund.

Bonds—Real Return

Cash is rarely a good way to hold currency these days because it is no longer backed by gold or silver, so it is subject to inflation and a loss of its value over time. People often buy bonds because they are stable and give a set interest rate, but they don’t realize that if the inflation rate varies, the bond’s interest varies in a hidden way.

For this purpose, it is advisable to purchase real return bonds. Real return bonds are adjusted for changes to the CPI, and therefore their interest remains constant since it is based on the real original purchasing value of the bond.