What is a realistic return on value investing?

[GiraffeValue]

Hi GiraffeValue,

Good criteria you have there, maybe I can just add some comments.

-P/E 4-10, - Is PER always the best measure? How would you know if a PER is "cheap" or "expensive"?
-Ptb <0.85, - PTB may not be accurate due to the accounting concept of historical cost. Also, market values may change the values of receivables and inventory drastically.
-div yield min 4% over 3yrs, - Dividend yield is a function of share price as well as historical dividends. Be careful of share price plunges which make yield look higher than it should be. Also be wary of companies which are about to drop or eliminate dividend - the historical yield may look tempting but you have to dig deeper.
-Debt no or <0.2, - Debt may sometimes be essential to help a company grow, and there is no hard and fast rule on an "appropriate" level of debt. Of course, excessive debt is never a good thing.
-ROE - ROE >15% is a good place to start. You may also wish to use ROIC (Return on Invested Capital) and ROCE (Return on Capital Employed)
-Mkt cap. >100M - Small caps may sometimes offer better value as they under-researched. Keep an open mind. Good businesses exist in the most unlikely places sometimes.
-High cash to mkt cap - High cash is good but may provide a drag on ROE. Try finding the ex-cash valuation of the Company.
-FCF of 2-3yrs - I'd go further back and look for 5-8 years of FCF. Also, look at how the Company performed during the GFC years of 2008-2009 to get an idea of its FCF ability during crises.
-yearly Insider buying / Share buyback. - This is helpful but may not always be a reliable indicator. Best is to dig into the business and numbers yourself.

A realistic return would be around 7% to 10% (some say 6-9%) CAGR over a complete cycle of around 8-10 years. To be honest, I am still compiling my return and I only have records stretching all the way from 2007 till 2014, so that's just 8 years (inclusive). It's a little better than 10% but I think I haven't accounted for cash so it's probably lower.

Hope this helps. Good luck!

Hi Musicwhiz

About the ratios whether is cheap or expensive, There's something to do with my approach which help I guess, because I'm using shareInvestor stock screener, so as for Low P/E low PtB, good div yield & ROE I have assigned weight to it and select those accordingly based on their ranking. Pretty much those stocks that are selected are also low in their sector as well. I then look into each company FR to see any red flag. And also Google and search Valuebuddies stock section to see whether I have missed out something. This is also how I got your blog and ended in my bookmark eventually

I set PE >4 and mkt cap >100M is to flush out those stupid S-chips which look too good to be true. Not always I'm able to follow exactly to my criteria as I'm looking to get a basket of 15-20 stocks by end of this year, too stringent on criteria I'll lose out a lot of selection, even till now I only have 8 stocks on my buylist. So keep reading, keep searching.

If I can achieve 10% return I'll be damn happy, as for now 5-8% I will be quite satisfy. Just now the main focus is to improve my skill and knowledge on the world of investing.