About 10 months ago, Shailesh Kumar launched his stock picks service at Value Stock Guide (www.valuestockguide.com). He is a value investor, meaning he digs up undervalued stocks that are cheap relative to the intrinsic value of the company. When he launched the service, he invited me to be a charter member, which I took him up on. It has been close to a year and I think this is a good time to review how the service works for my readers who might find it useful. Keep in mind, this is not investment advice. This is a non-professional’s review of a website I consider worthy of sharing with my readers.
First, a Brief Word on Value Investing
Many investors invest for growth, where they are willing to pay a premium to own stock in a company they believe will continue to grow at a rapid pace, expecting the stock price will keep pace with the company growth. Value investors on the other hand pay more attention to the fundamental strength of the business, typically the balance sheet, and buy the stock if it appears to be cheap, expecting that the market will eventually realize the true value and bid the stock price up. Value investors may take the future growth into account, but they understand that growth projections are seldom accurate and should be taken with a grain of salt.
Another important thing you should note about value investing is the aversion to risk by insisting on a margin of safety. While most academics and the Wall Street defines risk as the volatility in the stock prices, value investors define risk differently. For them, the risk is the possibility that their stock price will decline and they will lose part of their capital (they are not concerned that the stock price will shoot up suddenly – the “volatility” definition would consider this “risk” as well). So they prefer to invest a lot of time in researching a stock and the underlying business and buy only when they are confident that the stock is a good value. One advantage of buying a stock that is already beaten down (often, unfairly) is that the downside risk is already low. Still, buying the stock at 30-50% discount to its true intrinsic value provides an additional margin of safety – just in case they make a mistake in their research or some of their assumptions don’t work out.
Moving on to the Stock Pick Service
I have to say that his focus is mainly on small and mid cap stocks. It is generally very hard to find undervalued stocks among the large companies as they are well followed by the analysts and the investing community. Also the amount of research and analysis behind every stock that he recommends can take as much as a day to a week, so if you are into a list of stocks to day trade every day, this service is definitely not for you. But as they say, the proof is in the pudding, so you must check out his portfolio performance.
For example, since July 2009, when he started Covestor independently auditing his portfolio, he has returned 29.27% annually vs. a 0.68% annual return on S&P500. January 2012 also has been a great month for his portfolio, returning 12.90% vs a 4.41% on the S&P500.
Most are familiar with the various newsletter services around the web. With Value Stock Guide’s Premium service, you do not have to wait for the end of the week or the month to receive a newsletter. Shailesh sends out an email alert as soon as he makes a new buy recommendation, with a link to the analysis. He also invests in every stock that he recommends his members to buy and he sends out an alert whenever he personally buys or sells a stock. What I really like about the service is that he keeps his updated portfolio available for his members to view at all times. Total transparency is hard to find in this age and he goes out of his way to make sure that his interests are fully aligned with his member’s.
There is also a monthly newsletter and a dedicated forum for members to discuss any stocks and ask questions. He will also answer any question via email or over the phone, which is always nice to know.
Signing Up to Value Stock Guide Premium
You can sign up either as a monthly member or an annual member. Annual membership works out cheaper (33%) and gives you a 3 month money back guarantee. Just go to his stock picks page to sign up. He is also probably unique in the industry in that he has voluntarily capped his membership to 2000. This makes sense to me since a service like this loses its effectiveness with a large number of members. Also it is hard to maintain exceptional service levels once the membership grows too large.