The Gamble of Value Investing

      My eventual plan with my investing portfolio is to have five to ten percent of my investments in what will hopefully end up being “value” purchases, with the hope that these investments result in significant capital gains in our household’s available funds. So far, I have not made any of these types of investments, but have been doing a substantial amount of reading, hoping to accumulate as much knowledge from smarter investors than I probably ever will be.

My goal (investing-wise) is to have the following makeup:

10% – Bonds (ETF)
~80% Dividend-producing stocks
~10% in “value” stocks.

My current “obsession” with value investing partially has to do with diversification – moving away from the larger dividend-producing companies that I am currently focused on in order balance the portfolio with smaller and varied companies. The second reason for looking at value stocks as an alternative is the hope for the odd “home-run” on a minimal level of investment to increase the overall investment returns on the way to retirement.

At this point, I would say that I am in the range of “knows just enough to get my self into trouble” when looking at investing opportunities. I will not be fully investing my “Value” money immediately, while I take the time to learn all that I can about this way of looking at the market. Up until now, I was (at a basic level) looking at yield-producing companies and examining whether or not these entities would be able to continue to provide dividends to investors in the future.

Based on my limited knowledge of value investing, there seems to be the following steps involved:

  1. Identify stocks selling at a bargain.
  2. Research the stock extensively.
  3. Buy the stock at your target price.
  4. Wait for the market to figure out what you saw in the company, and buy the shares up to a profitable level.

 

Step one to three makes a lot of sense to me, and the stocks I pick and targets I set are mainly dependent on the research I do and the skill that I select stocks. It’s step four that depends on other investors either believing the same thing I did, or something happening with the company that is the concern with this type of investing. There are going to be times that I’m either wrong, or may enter a position too early that would result in initial losses on the purchase of a stock.

The gamble of investing in stocks that are currently undervalued, based on whatever metrics used to select the stocks is that nobody else will agree with the hypothesis that I’ve come up with, kind of like inviting everyone to a party and then nobody showing up – likely resulting in a similar feeling of dejection on my side.

For me, the potential gains from this portion of my retirement portfolio outweigh the risks associated with this type of investment, allowing for potential capital gains not available from the rest of the securities I have planned to purchase.

The Cellphone Option

Besides weather, the one thing that I’ve found can create a very passionate conversation with most people is their cell phone company and the cell phone plan that they have. I have yet to talk to someone who is completely satisfied with their cell phone or the plans offered by our Canadian cell phone companies. Operating as an oligopoly, the companies do not seem to have any redeeming qualities to consumers, with most people (including myself) having the feeling that the companies are out to “get” them personally.

I currently own a Samsung Galaxy S3, purchased about three and a half years ago. At the time, it was Samsung’s “flagship” phone and included all of the leading edge features. I use it mostly to read Reddit and text my wife, as well as using it as a golf GPS system in the summer. It’s a good phone, but is starting to break down – the charging port is kind of hit or miss (I think something is broken in there), and the battery life is kind of laughable, forcing me to go from plug-in to plug-in if I want to have any hope of being able to use the phone away from work or home. I could fix the phone and replace the battery, but that would cost about $100 to keep an aging phone going.

To “upgrade” to a new phone with Bell (my current carrier), I would have to change my contract around. I have a plan that gives me 6 gigabytes of data with unlimited texting for $60 after tax right now, which I can’t find anywhere else. The newest versions of phones are currently around $800 plus taxes, which is a little more than I would like to spend right now, if I would like to keep my current plan.

My solution to combat the terrible Canadian cell phone companies? Buy a phone straight from China. I found a phone I liked – it has 3 times the battery size of my current phone and runs a newer version of Android. Total cost of the phone is $300 Canadian after shipping. The phone (Innos D6000) is currently on-route to me via DHL shipping, and should be delivered at some point either this week or next week.

Buying my own phone outright made sense to me because:

  1. The phone I bought had features available to it that were not available in any phone being sold at comparable prices anywhere (or within $500).
  2. Buying a new phone allowed me to keep my generous data plan at a reasonable price. To get a similar amount of data per month would cost almost $500 more per year to get.

I’m hoping that my semi-sketchy purchase from China works out, but so far it’s been pretty easy – I research things incessantly before I purchase them anyways, so me watching more than a couple “unboxing” videos and demos of phones from China along with comparing various specifications from random websites and YouTubers isn’t a big deal. I’m excited for the extended battery life and interchangeable battery capability that comes with this phone, as well as maintaining my “as good as I think I can get in Canada” cell plan.