Fair Value Strategy & Fair Value Calculator Tutorial

Learn more about the value investing strategy and how to use the fair value calculator to find stocks that are worth more than they cost.

By putting together a balanced stock portfolio full of cheap and promising stocks, you can minimize risk and maximize stock return!


The Fair Value Strategy:

The Value Strategy or Value Investing is a special style of stock investing. In a value strategy, only shares that represent a higher real economic value than the current market price are added to the stock portfolio.

How do i find stocks that are worth more than they currently cost on the stock market?

Stock companies are required to publish annual financial reports. These annual reports contain many so-called fundamental key figures on the financial status of the company. This financial data shows the financial health of a stock corporation. By properly analyzing this financial data, a value investor seeks to assume an approximate true value of the company. 

 

What does the Fair Value Calculator do?

 

The Fair Value Calculator prepares these fundamental company key figures for the users in such a way that they can recognize with just a few mouse clicks whether a share of a stock corporation is a bargain - or too expensive.

 

And now that I know what the company is really worth?

 

Now that the investor knows the true value of the stock, it compares that value with the current stock price. 

If a stock is worth more than it currently costs on the stock exchange, the value investor buys that stock and assumes that sooner or later the true value of the company is recognized by other market participants. On the long run stocks will get closer to their real value and undervalued stocks will perform better than expensive stocks. 

 

How do you build a balanced value stock portfolio?

 

The tools on this website will help you to find true value stocks and to assemble your own stock portfolio full of value stocks.

The Fair Value Calculator:

With the help of the Fair Value Calculator, you can quickly and easily find out the true value of a stock and invest in stocks that are worth more than they cost.

The Fair Value Calculator has been around since 2005 and has delivered very good returns since then. For example, benchmark indices such as DAX, Dow Jones and S&P 500 & Co. have been able to achieve a mean return of around 165% since 2005.

In other words, if you had selected many stocks from these indices and invested in stocks by chance, you would have earned an average return of 165%.

With the Fair Value stocks, which were selected according to the strategy presented here, a return of around 440% was achieved, which is without question an astonishing result.

To find out for yourself which stocks are cheap and have a high fair value, you do not have to be a stock market genius. In the following video, you'll learn how to use the Premium Tools and create your own portfolio that complies with the guidelines of the Fair Value Calculator strategy.

Once you've created your portfolio, you can take the list of stocks into your real money brokerage account.

Value investing and market performance

How to use the stock screener and database:

In this video you learn how to operate the premium stock screener and database. In addition you can setup you own value portfolio. Afterwards you can copy your created portfolio to your real money brokerage account. As an alternative to the Premium Members section, which automatically displays Fair Value stocks, you can also use the manual free calculators to find stocks that have a high fair value.

After paying the membership, you will receive your access code for the Premium database and the associated personal dashboard by e-mail. Here you can log in to your dashboard.

The personal dashboard consists of a watchlist that is empty at the beginning. Here are shares to be added, which seem particularly interesting.

Below the watchlist, the Portfolio Manager provides guidance on what types of stocks to put in the watchlist to minimize your risk. The professional talks here about diversification and the right asset allocation.

When you have completed all the tasks of the Portfolio Manager, all the bars will turn green and your portfolio is at a lower risk than, for example, putting all your money in one stock.

To find the stocks for your watch list, you can either look for fair value stocks by name using the search function, or filter stocks by country and other data using the stock screener.

If you have found an interesting stock with a high fair value, you can visit the stock's detail-page by clicking on the name of the stock.

On the stock detail page, you'll have more fundamental key figures and tools to help you determine if it's a promising stock.
If you are convinced of the quality of the stock, you can include this stock in your watchlist.
The stock will remain there for as long as you are a member, and you can watch the return you would have made if you had invested in the shares from the watchlist, or transfer it directly to your real money stock portfolio.

 

Note: By assembling the watchlist you are not really investing in stocks. You will only receive a proposal on how your equity portfolio could be put together. If you really want to take advantage of the stock, you need to have a securities account that banks set up for you like a traditional account. In this securities account you can then buy the shares from your watchlist with real money.


Our unique formula

To obtain the fair value for a stock, we have developed a formula that uses many fundamental key figures to determine a value that is subsequently compared to the current stock price. The key figures are used in such a way that they are included in the fair value according to empirical data.

 

Backtests, live tests and statistics of the last decades confirm the function of the Fair Value Calculator

 

To find the right metrics for our formula, we compared the correlation of each fundamental key figure with the stock price. Afterwards we examined how strongly which key figure influences the stock price. According to the correlation between the key figures and the stock price, the individual key figures are weighted differently in the formula.

In the formula, the different key figures are combined that an approximate target stock price can be determined.

Finally, the fair value (In Premium Membership) receives surcharges and discounts on certain characteristics. Thus, the fair value receives a premium if the stock had made more return in the past and a discount if the stock had brought less return than an investment in the overall market.

 

The following key figures influence the calculated fair value in the Fair Value database with the Premium Membership:

  • Earnings per share: How much profit the company achieves (on a historical weighted average).
  • Cash flow per share: How much cash flow the company generates (on a historical weighted average).
  • Growth of Profit: How strong the company can increase profit.
  • Cash flow growth: How strong the company can increase cash flow.
  • Growth in sales: How much the company can increase sales.
  • Return on equity: How economically a company works with the capital invested.
  • Return on total capital: What interest income will the total capital invested bring.
  • EBIT margin: Provides information about the profitability of the company.
  • Book value per share: Equity reported in the balance sheet, ie the sum of all assets without liabilities.
  • Returns in the past compared to the overall market: Whether the stock is performing better than the overall market or not.

Requirements:

For the investment in the stock market using the fair value strategy, you need a starting capital of at least 10,000 Euro and an investment horizon of at least 7 years. The fair value strategy is not for speculators or players. The strategy relies on long-term studies and scientific results that bring long term success.

Moreover, this is not a get-rich-quick scheme, but a meaningful build-up of passive income.

The reason for the start-up capital and the investment horizon, ie the holding period of the shares, is the necessary diversification and the minimization of the risk.

The more different stocks you own from different countries and sizes, the lower the risk. To achieve this diversification, you must buy at least 10 different stocks to be successful. Since a certain price is charged for buying the shares, buying a share below 1,000 Euro would incur too much additional costs. Therefore, it makes sense to implement the strategy with at least 10,000 Euro.

The investment period of 7 years is based on the observation that even after the biggest stock market crashes in history the loss was already set back after 7 years. It is important that you keep calm and continue to follow the fair value strategy.

 

"If you are looking for a quick win you are wrong here!"

 

With the fair value strategy, we aim for an average annual return of 15-25%. Long-term investment in fair value equities yields returns in the long term through the compound interest effect.

The strategy is not suitable for short-term speculation or the use of risky equity derivatives such as leverage certificates or warrants. With the fair value strategy, you buy stocks that are worth more than they actually cost, and wait patiently for years until even the masses realize that the stocks are actually worth more than those cost.

 

step by step value stocks

Step 1: Open Account for Stock Orders.

In order to create a stock portfolio in accordance with the fair value strategy, on the one hand you must use this website to find stocks that are worth more than they cost and on the other hand you have to have a real-money stock account.

This page shows you which stocks you can buy, but does not invest directly in stocks. You must transfer the shares into your equity portfolio. Opening this stock portfolio is not witchcraft. You do not need anyone to help you.

With the help of this website you can easily do it yourself! Stockbrokers call themselves online brokers. These are service providers who offer you an account at very favorable conditions and usually offer not only free account management but also very favorable conditions for the purchase of stock shares.

Such a provider can easily be found via a Google search "Online Broker". Choose an online broker that suits you and is located in your home country. There you create an account like at every other bank. This account will have an account number to which you can transfer money from your bank account. After a few days, the money will be at your online broker and you can start buying stocks.

Step 2: Buy Fair Value Stocks.

Now that you have opened your account, you can go online to the online broker mask and search for stocks. Each share has a mark. The WKN or ISIN is the hallmark of the stock and identifies each stock exactly. To find lucrative stocks and view their WKN or ISIN you can log in to the Portfolio Manager on this website and search for cheap stocks. In the Portfolio Manager, you can compile a list of stocks that are cheap and can see their identification numbers (WKN / ISIN).

All you have to do now is transfer the generated list to your account at the Online Broker.

 

Example:

 

You've created an online broker account, signed up on the Fair Value Calculator page and complied with the Portfolio Manager's advice. Now you should see a list of at least 10 stocks. The WKN / ISIN is visible for every share. Now you buy these 10 shares at your online broker for one-tenth of your invested capital.

To do this, enter the WKN / ISIN of the share in the search there and select the share. Now you have to place an order. An order is like an order of the stock and is usually executed automatically by the online broker within minutes. You can usually choose between different order types and stock exchanges.

That must not confuse you. For the order type, select "Market" and a specified stock exchange. When the order is executed you will receive an email from the online broker and the stock will be in your account. Do this with all the stocks found in Portfolio Manager in your compiled list.

Step 3: Follow Mail instructions.

When you transfer the stock list from the Portfolio Manager to your real money account with the online broker you have done everything you need to do. Should an action be necessary in your portfolio, we will contact you by email. For example, the fair value of a stock may fall and must be sold. In addition, it may also happen that a stock develops so well that a partial sale is necessary to keep your portfolio balanced. But in both cases, you would receive an email requesting action.

Nevertheless, take a look on your dashboard from time to time as we are constantly updating. You can also see clearly in your personal dashboard how your stocks develop and how the gaps to the respective fair values develop.