What Has Actually Worked in Investing

#AskDrWealth What Has Actually Worked Investing

Alvin Chow
Alvin Chow

With the investment industry running for as long as we can remember, many studies and strategies have been published to teach us some ways to successfully crack into the stock market.

Therefore, you can just expect how there are probably thousands of investment metrics and ratio you can use for stock investing, most especially if you are looking to generate better returns.

On one side, some would say that high ROE stocks are good. While others would say high paying dividend stocks are better.

Now with all of these inputs, the question boils down to this:

“How do we know who is right?”

Tweedy Browne, a renowned investment hedge fund, has published an iconic paper titled, What Has Worked in Investing? The paper instills 5 investment characteristics that have been proven to work over time.  

And the best part of these investment characteristics is that they have worked on all countries, including Singapore.

So in today’s episode, join us as we share with you five investment ideas that you can use to increase your stock market returns. Amidst all the noise and without drowning from all the advices, we give these simple ideas as proven.

Five Investment Ideas to Increase Your Stock Market Returns

Idea #1: Buy Low Price-to-Book Stocks

If your stocks have low price-to-book ratio, you have a good chance to earn high returns from your stock investments. This is of advantage since you are actually paying less than the net worth for the stocks. Plus, you get rewarded when good things happen.

Idea #2: Buy Low Price-to-Earning Stocks

If you are thinking that PE-ratio is so simple and therefore useless, you are making a big mistake. Why is that? To put it simply, it is because low PE-stocks are shown to beat high PE-stocks throughout history in all investable markets.

Idea #3: Buy Alongside Insiders

Would you ever buy a company stock if you know for sure that something positive is going to happen? I bet you will. And that is why company directors and insiders will do so as well.

Because of their roles in the company, they will have “insight information” that the public would not have access to. They undeniably know where to bet with all the cards they have.

And according to the study, stocks that have a significant pattern of insiders’ purchases tend to produce higher returns.

Idea #4: Buy After a Huge Decline in the Stock’s Price

At the first glance, buying after a huge decline in the stock’s price may sound ridiculous. After all, why would the lowest stock price have got to do with higher price returns?

Well, according to the studies, there is a phenomenon known as “mean-reversion”. Basically, what it pertains to is the simple and common analogy of what goes up must come down and what goes down must come up.

To help you understand, let us quote from the study:

“More often than not, companies whose recent performance have been poor tend to perk up and improve.”

Idea #5: Buy Small Cap Stocks

This might not seem well with blue chip investors. If you are the type to invest to bigger companies, then we ask you to maybe give small cap stocks a chance. There are actually benefits to buying them.

One, small cap stocks can have high growth potential. And second, they can also be acquired by bigger companies. Therefore, it has the possibility to become a blue chip stock later on.

These are the five proven investment ideas that you can use to increase your investment returns. We hope that you learn a lot from these and that you’ll find what works for you.

Perhaps, are you already using some of them today? Comment below and share with us your experience.

See you on the next!

Alvin Chow
Alvin Chow
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.
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