Three rules before you SIP into anyone's cheap list
A low ratio is a question, not an answer. The answer lives in the cashflow statement, not the price chart. Read three things before you treat a discount like an alpha.
RULE 01
Read the cashflow forward not the multiple trailing.
P/E and P/B sit on yesterday's numbers. A stock is cheap because somebody is selling tomorrow. Walk the next four quarters of FCF and operating margin before the screen counts.
RULE 02
Value works as a cohort. The single stock is the trap.
Fama and French published the value premium across the bottom 30 pct of book-to-market, not the bottom 3 stocks. One value name is a coin flip. A clustered basket harvests the spread and survives the duds inside it.
RULE 03
Cheap is a regime trade. It can sleep for years.
US value gave back a decade between 2009 and 2020 before reasserting. Indian value sat under growth from 2015 to 2020 then beat it for three years running. Position the bet inside a portfolio that does not need it to work this quarter.
The line that pays
Buying a stock because it is cheap is like buying a house because it is on sale. Either the market knows something you do not. Or the seller is just tired. The cashflow tells you which.
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