The Simplest Way to Invest #2

In the previous post, we talked about the importance of risk sharing and the need to create a portfolio to share risk. We said that the first step in creating a portfolio is to look at the P / B ratio of the shares we will buy. This ratio helps us to understand whether the lots we will buy are cheap or expensive. You can check the previous post for detailed information on this subject. In this post we will examine a sample portfolio.

Warning: This is not investment advice. The chart below is from 2015 and is without details. It was created to give an idea. The following companies are in Turkey.

In the first quarter of 2015, while looking at the P / B ratios of the company shares, I saw that the P / B ratios of ECILC, DOHOL, VESTL and TRGYO companies were low. This means their shares are cheap.

The blue line in the chart below shows the average earnings of these four companies ECILC, DOHOL, VESTL and TRGYO over 2015. The orange line shows the average earnings of the 100 largest companies on the stock market in Turkey (BIST100).

As you can see, the index created with these four companies has gained value in a year. I formed the index of the portfolio by looking at the values of the last four days of the stock exchange’s closing in 2014. The index of the portfolio was roughly 1480 at the time, while the BIST was around 400. By the end of 2015, while BIST did not even reach 500, the portfolio I created approached roughly 2300. This means that when 100 thousand Turkish Lira was invested, it became 155 thousand Turkish Liras at the end of 2015. If this performance continues for five years, when 100 thousand Turkish liras are invested, it becomes approximately 1 million 280 thousand Turkish Liras in five years. However, this portfolio may not show the same performance for five years.

When we create a portfolio, we need to check the P / B ratios of the companies we buy from their shares, and when we determine that the ratio has reached saturation according to itself and the sector, we need to sell our shares. Now we can get our profit. Then we can buy another cheap stock with a low P / B ratio and add it to our portfolio. If the P / B ratio of the company whose shares we bought does not reach saturation for many years, we can continue to make profit without effort.

Here, it is necessary to mention the loss of value of money. Suppose we buy 100 thousand Turkish Liras worth of shares and sell our shares for 1 million 280 thousand Turkish Liras at the end of five years. When we look at the inflation values between 2015 and 2020, we see that the purchasing power of 100 thousand Turkish Lira at the beginning of 2015 is equal to the purchasing power of 550 thousand Turkish Lira at the beginning of 2020. Still, we made 175% profit.

In this example, we saw that we made a profit without tiring ourselves on an investment we made just by looking at the P / B ratio. If we make the right investment and follow it correctly, we can easily make a profit. To be able to do this, there is no need to stress, watch the stock market for hours, sit in front of the screen all the time, learn technical analysis terms…

If you want to start investing, you can start by trying to identify stocks with a low P / B ratio. If you don’t have any experience yet, create a portfolio and follow it without buying shares. Or buy one lot from each of the companies you choose. This will cost around $ 25-50 on average. Follow the lots in your portfolio for a few months with online banking. By taking such small steps, you can start investing and gain experience.

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