Investment Bargains

Talking of analyzing stocks, the most important factor to consider before making an investment is the price you pay for the stock. Benjamin Graham in his writings has laid a very strong emphasis on the price you pay for any stock.

When we talk of bargains, we are particularly looking at stocks which are selling cheap. Different opinions might exist in the market for the meaning of this word "cheap". For some people, if a stock is quoting at/near its 52 week low, then it is cheap, but the value investor should keep in mind that a stock is cheap only when it is selling below the value the investor think the stock is worth. Graham referred to these investments as Investment Bargains.

Stocks that are selling below their liquid asset value for reasons varying from poor industry performance to temporary losses. These stocks are worth much more than they are selling for. Under such conditions, if the market price of the stock suppresses to a point that it is below the cash on the balance sheet of the company, then the stock presents a very interesting opportunity which is termed as "Cash Bargains" by investment gurus. But Graham warns the investor to stay away from companies that may show signs of dissipation of these assets in the future. Also, the value investor should seek for companies that have shown large earning power in the past. The past earning power is in no way an assurance for future earning power, but the point which is being made here is to look for stability in companies in order to reduce your odds of making a wrong decision. 

Investment philosophies of different investors might contain different standards for a stock to be declared as a bargain and I believe, these standards are formed by one's experience in the market. Generally during the bull markets, it becomes difficult to find investment bargains as most of them are quoting at high prices but its not impossible. 

Looking at the current scenario in the Indian markets, with the stock markets shooting up after the election results, I believe it will become a bit more difficult to find bargain issues in the market. But there will always be some unpopular stocks out there that will present bargain opportunities to people moving on the path of Value Investing.