Picture your Future. Save for it by earning 1.5% on a 1-year Term Deposit Account! Learn more.

Seven tips for valuation-driven investing

Source: Morningstar

Staying on the road less travelled

For valuation-driven investors to succeed, they must do so unconventionally. They must overcome their biases and often take
actions that directly contradict the views of their peers. It requires great mental toughness to do this consistently, which is
why few investors are able to beat the market benchmark over long periods. What helps valuation-driven investors succeed is a process they can stick to
that gives them the confidence to always stay the course. We have identified seven tips to help
keep valuation-driven investors focused on meeting their long-term goals, even when market changes threaten to distract them.

  1. Find the right opportunities: This requires a consistent valuation framework for estimating the fair value of an asset. It also requires a willingness to consider
    out-of-favour assets. The greatest value opportunities often lie in unglamorous industries or in companies that have recently experienced bad news, but remain fundamentally
  2. Do the fundamental research: You need to be able to distinguish the low-priced assets that will likely recover (the bargains) from those that will likely not
    (the value traps). You will need to analyse the investments’ financial statements and pay close attention to its qualitative characteristics, such as its underlying business
    model and governance, to determine whether these characteristics indicate it’s a sound investment.
  3. Stay mentally tough: Cheap assets tend to be unpopular. Valuation-driven investors must avoid being swayed by other investors’ sentiments or market trends.
    That’s why it is so critical to build a solid investment process that includes a rigorous valuation framework and an insistence on a substantial margin of safety. This will
    help give you the confidence to stick with your decisions, as well as the willingness to change them when circumstances change and an asset no longer appears attractive.
  4. Play the long game: Buying an undervalued asset is only the beginning. It may take a considerable period of time for an underpriced asset to return to its fair value.
    Investors must be willing to hold investments for many years. Don’t waste time thinking about unrealised profits and losses along the way. The market only really matters at
    two points: when you enter and when you exit.
  5. Wait for the right moment: Markets do not always offer the same number or quality of opportunities. There are periods in the market cycle when prices are low and
    opportunities are plentiful and other periods when prices are high and opportunities are scarce. If investors cannot find assets that offer good value, they should conserve
    cash and wait for more-attractive opportunities, rather than commit capital to lesser opportunities with limited prospects.
  6. Avoid trading too much: Many investors believe that activity is good and low turnover in a portfolio is a sign that the manager is not making decisions. In reality,
    exceptional opportunities can be rare, while active trading boosts costs that act as a big drag on returns. Successful valuation-driven investors devote as much time as possible
    to research and as little as possible to buying and selling.
  7. Hold a range of return drivers: A portfolio that depends too heavily on a single factor to drive returns effectively becomes a forecast of that factor. For example,
    returns for a portfolio concentrated in oil stocks will be too dependent on oil prices. Such factors are often very difficult or impossible to forecast accurately. So investors
    should aim to diversify their portfolio among different securities in such a way that returns will be driven by a range of unrelated factors.


The above is for informative purposes only and should not be construed as an offer to sell or solicitation of an offer to subscribe for or purchase any investment. The information
provided is subject to change without notice and does not constitute investment advice.
MeDirect Bank (Malta) plc has based this document on information obtained from sources it believes to be reliable but which have not been independently verified and therefore does
not provide any guarantees, representations or warranties.
MeDirect Bank (Malta) plc, company registration number C34125, is licensed by the Malta Financial Services Authority under the Banking Act (Cap. 371) and the Investment Services Act
(Cap. 370).

Join MeDirect today to access the tools you need to put your money to work on your own terms.

Latest news articles

Buying a summer residence can be a great way to create cherished family memories and also an excellent investment. There are a few things to keep in mind before going ahead though.
All News

A summer residence to enjoy or as an investment

Buying a summer residence can be a great way to create cherished family memories and also an excellent investment. There are a few things to keep in mind before going ahead though.

Consensus forms at Outlook Forum
All News

BlackRock Commentary: Consensus forms at Outlook Forum

BlackRock investment leaders gathered on June 6-7 for their semiannual Outlook Forum, where they concluded that interest rates are likely to remain elevated due to persistent inflation. They also shifted their view on artificial intelligence, now believing that its buildout could be inflationary in the near term, with a select group of AI winners expected to drive returns over the next six to twelve months.

Epic Investment Partners Weekly Article
All News

Epic Investment Partners Views: The Week Ahead

In Epic Investment Partner’s view, this week’s economic landscape is marked by mixed signals from China and a series of critical data releases from the US and Eurozone. As markets digest last week’s developments, including the Fed’s cautious stance on rate cuts and MSCI’s decision affecting European bonds, investors brace for a busy week ahead.

Experience better Banking

The sooner you start managing your money, your way, using the best-in-class tools, the sooner you’ll see results. 

Sign up and open your account for free, within minutes.



We strive to ensure a streamlined account opening process, via a structured and clear set of requirements and personalised assistance during the initial communication stages. If you are interested in opening a corporate account with MeDirect, please complete an Account Opening Information Questionnaire and send it to corporate@medirect.com.mt.

For a comprehensive list of documentation required to open a corporate account please contact us by email at corporate@medirect.com.mt or by phone on (+356) 2557 4444.