The Motley Fool

Here’s How I’d Invest in Value Shares to Make a Million

Image source: Getty Images.

Value shares have been relatively unpopular for much of the last year. Investors have instead focused on companies that could deliver high earnings growth in what is expected to be a changed global economy post-coronavirus.

As such, there may be buying opportunities among cheap shares in high-quality businesses. Through purchasing a wide range of them now and holding them for the long run, it may be possible to obtain index-beating returns that increase an investor’s chances of making a million.

Buying high-quality stocks at cheap prices

There is a great difference between cheap shares and value shares. The former are simply companies that trade at very low prices. In some cases, they can offer good value for money if, for example, they are a high-quality business with a solid financial position and large competitive advantage. However, in other cases they may be trading at a cheap price because they lack those attributes, or because they face difficult operating conditions in the long run.

Therefore, it is important to assess the quality of a business before buying it. Clearly, this will be very subjective. But it is likely to include consideration of a company’s balance sheet, strategy and market position relative to competitors to deduce whether a company offers good value for money at its current price. All of these factors can have a large influence on its capacity to deliver improving profitability. As such, ensuring they are in place before purchase could be a means of reducing overall risks and improving potential rewards.

Building a portfolio of value shares

Many value shares are priced at attractive price levels because they face temporary challenges. For example, at the present time they may face disruption from coronavirus lockdown restrictions that are unlikely to last in perpetuity.

However, those threats can sometimes cause the downfall of a business. For example, they may be unable to adapt to a changing world economy in the long run, or new technology may make their products obsolete. This means there is a real threat that any value stock can lose money for investors, or even fold. This makes it extremely important to build a diverse portfolio of stocks that, together, can provide a high overall return. Otherwise, it is possible to have a portfolio that is overly concentrated and susceptible to poor returns from a small number of holdings.

Making a million

An investor who buys a diverse portfolio of shares to match the return of the wider stock market could realistically make a million in the long run. For example, investing $750 per month at an 8% annual return would produce a portfolio valued at over $1m within 30 years.

However, through buying value shares it is possible to outperform the stock market. This could help to bring a £1m portfolio in a shorter timeframe as the world economy and stock market recover.

Motley Fool Canada Makes 5G Buy Alert

5G is one of the greatest arrivals in technology since the birth of the internet. We could see plenty of new wealth-building opportunities in 2021 that would potentially dwarf any that came before them.

5G has the potential to radically change our lives and society as we know it, but if you’re an investor, the implications are even greater — and potentially much more lucrative.

To learn more about it and its revolutionary potential to change the industry — and potentially your bank account — click on the link below to get the full scoop.

Learn More Today!

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.