It’s always nice to buy one dollar bills for 50 cents or less.
But what should happen in order for you to be able to “sell” that asset at its realizable value if you are a small shareholder?

@mjukr – For small cap value you should expect that prices will jump around much more than you are used to. Smallcaps will go up as well as down sometimes on the order of 10% a day. (Your total portfolio of say 15-20 of those stocks will not fluctuate more than the usual 0-2% (funny day to be writing this when the Dow is down around 5%). Baring the current mayhem, that would not be normal for blue chips. A smallcap portfolio will be almost uncorrelated with Wall Street. You will be comparing apples and oranges. To give some examples. I bought shares in an electronics company (SGMA) for 9.2. Some time after it was trading at 13. It is currently under 6. I will either sell at 18 or sell regardless in two years. Another stock was Standard Motor Products. Bought at 8.2. Then it went down around 6. Later it went up around 10 where I wrote calls on them. It dropped and I covered my calls (profit). I doubled my position at 7.0. Since many of these companies are not followed by analysts they only react substantially when 10Q or 8Ks come out. Should you go down this road? Not without spending a lot of time studying. It is after all work rather than piggybacking on an index. It’s like riding a motorcycle compared to riding the bus.

@dividend growth investor – One of my criteria is a minimum daily volume (>4000). Also, I only use limit orders to minimize damage from the spread.

As another followup, how much of your income comes from dividends vs growth?

@mjukr – What Steve said. I tend to develop strong urges to sell when the yield from a company goes below 3%. My number is 3% simply because of the size of my capital base If it was bigger, I would go down to 2%. Also inflation tends to increase the capital base and generally it will increase the dividend as well which is why I think this strategy has long time merits.

Jacob,

I think that you will do great if you research dividend investing. It’s pretty cool to keep receiving those dividend direct deposits even though the stock market is tanking. It’s even better when the companies you hold stock i decide to increase that payment every year. It’s sad if they cut it 🙁
I park my cash in my rewards checking account which pays me 6% APY. I do have to make 10 debit card purchases/month, but it’s pretty easy to do it.
Other than that I would keep contributing to index funds. You could also get some CD’s of course.

@Sporkman – Agreed. That seems to be what value investing is about. Find the current market cap and compare it to the equity (book value), which is assets minus liabilities. I figure this is easy to do for companies made of nuts and bolts, since you just sum up the machinery which can be sold off. It’s very hard if the company can’t be parted out or assets are intangible. To wit, value investing was somewhat easier in the 1930s than it is now.

It takes a lot of work. Unless you ask Jacob what he would buy for the short term if he was willing to take a risk. I’ve done that a few times and always done very well. Thanks!

The concept behind value investing seems easy, but does take discipline. Theoretically you would invest only in companies pertaining to your circle of competence. So the better you are at your circle of competence, the better can you analyse the true value of a company. I’m wrong ?