A report by Tim Melvin on stock market news site Benzinga addresses stock buyers' impulsive, and often short-sighted decisions with regard to trading stocks. Although initially regarded for individual investments rather than in-and-out trading seen in the stock markets, Melvin believes that stock buyers may want to take pointers from the private equity model.
Melvin said the Cambridge Associates private equity index saw an annual return of 13.49% in the past two decades ending September 30 of 2013, which could easily speak for private equity investors' successful approach to getting better returns than stock investors. According to his report, private equity acquires assets at a discount and keep them for a certain period of time until the market offers attractive opportunities for them to sell them off. This is because private equity intend to earn multiples from their original investments as oppose to gaining small, minute percentages. Citing the benchmark index, Melvin said no other index has come close to achieve the type of performance the Cambridge Associates private equity index has hit.
Moreover, Melvin said private equity firms has been selling continuously since the beginning of last year. This is because the firms had been looking for assets that are undervalued on a daily basis and get rid of some that they own that they think is gaining popularity and could be sold with reasonably significant gains. Melvin said picking up this trait from private equity investors make more sense than tracking flashy short traders.
Melvin highlighted the fact that private equity firms have a knack to determine which industries are currently out of favor but will expect a resurgence and could be bought for cheap. For example, he said that stock buyers might want to take a look at the mining industry. The attraction it generated at this time from private equity indicates that stocks in this industry could surge anytime soon as. Melvin urges stock investors to go over mining-related companies and determine which one to invest on based on deep value portfolio, or as defined by Investopedia, the assessment wherein one determines the value of a stock by comparing its current trading price to its fundamentals, like dividends, earnings or sales. For example, Melvin said that according to his calculations, Silver miner Pan American Silver is currently trading at 77% of its book value, while Couer Mining is at 50% book value, which makes them candidates for long-term investments.
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