The Art of Being Cheap

I enjoy getting and responding to feedback from readers, so I try to reply to all comments, emails and tweets in a timely manner. I do not always succeed, but I do make a serious effort. One of the more interesting comments I received last week was from a reader who chided me for having an overly simplistic approach to investing. He pointed out, quite correctly, that the old Wall Street mantra of buying and holding quality stocks has not worked for investors for nearly a decade. Those who took it on faith have taken dramatic hits to their net worth.

My approach is not buy-and-hold as traditionally defined. I do not blindly buy or sell anything. I really do try to exercise the discipline to buy what is cheap and sell what is dear. I focus on valuation first -- always. I use tangible book value as my chief measure of value but I also calculate intrinsic value and liquidation value for certain situations. I also do comps on takeover and merger situations by industry group to keep a constant measure of what rationale buyers are paying for companies similar to those I own. When a stock I own trades at a significant premium to its underlying value, I sell it regardless of market conditions. If the fundamentals change materially for the worse, I sell the stock. My approach is to buy what is cheap and sell what is expensive....418 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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