Welcome to the Frequently Asked Questions for the Value shares discussion board.

To save your time we've packaged the most commonly asked questions and answers together in this message. If you have corrections, additions or suggestions please post them as a reply to this message.

Q. What is a value share?
A. The word "value” has both a general meaning in everyday use, and a specific meaning in the investment world. On this board we are using value share as an investment term, along these lines:

"A share trading on fundamentals that stand at a significant discount to the market."

That is a share that is perceived to be undervalued by the market on the basis of common investment criteria such as Price/Earnings Ratio; Yield; Price to Book and so on, rather than on forecast earnings projected many years ahead. This article by Stephen Bland (TMFPyad) "What Is Value?" - goes into this in more detail:
http://www.fool.co.uk/valueinvesting/2001/vi010202.htm?ref=boardspost

Q. Does that mean that only shares that meet very strict criteria can be discussed here?
A. Not at all. Within that broad definition of Value, many styles and variations are possible. It would be helpful, however, if you could discuss here only shares which do fit broadly into that definition. You will not win friends or influence on this board by trying to convince readers that your own definition, which might include highly leveraged growth shares, really constitutes "value".

Q. Is Value Investing the same as the contrarian approach?
A. It is one aspect of it. You are going against the crowd, against the fashion, in buying shares that others have rejected.

Q. Why is this attractive?
A. In most cases it isn't. Shares that appear to be undervalued because they have low PE and high yield for example, frequently deserve their rating because of poor performance with little hope of circumstances changing. They are not therefore undervalued at all, and in fact are correctly rated by the market.
The attraction comes in locating shares which are unfairly undervalued, that is where the observer feels that the market has not taken into account some aspects of the share which make it a possible buy.

Q. What aspects make these shares attractive?
A. In nearly every case, the attraction comes with a sharp rise in earnings per share forecast for the coming year. In fact without this the share is probably not worth buying. This is the key to successful value investing. It is rising earnings that have not yet been factored into the share price. The hope is that, once it is factored in, there will be a turnaround in the price.. Often, value shares attract bidders, by definition being attractive to predatory companies. However you cannot rely on a bid to realise the value. If it happens, it's just icing on the cake.

Q. Assuming I have found a good value play, how long will it take to realise?
A. This is related to the well known question on string length. Value investors need considerable patience because although the investor may perceive value, the market may not see this for some time. Years in some cases. Here is a discussion on when to sell: http://boards.fool.co.uk/Message.asp?mid=5693694

Q. How reliable is this strategy?
A. It can be very successful but there are risks. Forecast rising earnings can fail to materialise for example. You must be prepared to do fair amount of research and large amounts of patience and total discipline are required. It is definitely not a game for quick in-and-out traders.

Q. What does PYAD stand for?
P/E - under 2/3 all share.
Yield - more than 50% of all share
Assets - greater than share price (nowadays PTB<1).
Debt - preferably none

Those are Stephen Bland's (TMFPyad's) criteria which he uses to sift for his own share selections. There are other Value styles. You must do your own research and select a style that is appropriate for you. Here are some of TMFPyad's early articles on his style of value investing.

Value Investing -- What is Value? [ August 13, 1999 ]
http://www.fool.co.uk/stockfoolery/1999/sf990813.htm?ref=boardspost

Value Investing -- Minimise the Downside [ August 20, 1999 ]
http://www.fool.co.uk/stockfoolery/1999/sf990820.htm?ref=boardspost

Value Investing -- Maximise the Upside [ August 27, 1999 ]
http://www.fool.co.uk/stockfoolery/1999/sf990827.htm?ref=boardspost

Value Investing -- What Can Go Wrong? [ September 3, 1999 ]
http://www.fool.co.uk/stockfoolery/1999/sf990903.htm?ref=boardspost

Q. Does this mean that only shares which meet the PYAD criteria can be discussed here.
A. No - this is covered by an earlier answer, but just to put it beyond doubt, any share that meets the generally accepted meaning of "value" in the investing world may be discussed here. Shares which meet the full PYAD criteria will hardly ever be discussed for the simple reason that there are very few shares which meet all those criteria. (This is a characteristic of the PYAD approach, it is a very fine sieve.)

Q. How do I propose a candidate for discussion?"
A. The best way to present a share is to include the fundamentals and information that makes you believe that the share is noteworthy. An example of this is here:
http://boards.fool.co.uk/Message.asp?mid=6370363 or here:
http://boards.fool.co.uk/Message.asp?mid=6313035

Q. How can I distinguish between discussion of a particular value share and value investing theory?
A. Selecting the subject line for your message can certainly help. If carefully selected it can guide the readers. For a message about a particular company it is common practice to have the company name in the subject line.

If the message is about an issue associated with value investing it is common practice to select a subject which describes the issue. If in the middle or an "issue" thread you think of a company which epitomises the issue addressed by the thread it would be best to start a new thread in the name of the company, but include a link back to the issue thread in the initial message.

Q. Where can I find information on locating value shares?
A. At the Motley Fool of course! :-) Here is a link to the Archive of Value Investing articles: http://www.fool.co.uk/valueinvesting/2001/2001vi.htm?ref=boardspost

The Investors Chronicle is a very good source, in their company results section. Other sources include Company Refs but unfortunately that is rather expensive. You will find more information here: http://www.companyrefs.com/

There are other computer databases such as InvestorEase which are cheaper but nowhere near as comprehensive. On the net, the Hemmington Scott site gives quite a lot of company information especially on the critical forecast earnings figure.

Q. Where can I find which shares have been considered as possible Value shares?
A. This topic is discussed on the Value Shares List board:
http://boards.fool.co.uk/Messages.asp?bid=51192

Q. I'm interested in high-yield shares for income purposes.
A. Then you need to visit the High Yield Portfolio board where this subject is discussed: http://boards.fool.co.uk/Messages.asp?bid=51166