Q: How much attention should I pay to book value? How does book value play into managing a portfolio? After holding an investment for a number of years, taking profits, adding to the position, etc, I try to look at both the market and book value when making decisions. My idea is that I don't want the book value to exceed 4-5% of any stock. Lots of advice about management of the current market value, but I hear less about book value. Thanks for your advice.
5i Research Answer:
For certain companies that are more focused on physical assets or financials, book value can be more helpful but outside of this it is not a metric that is used too widely. It was more applicable years ago but markets have changed a lot over time and it just isn't an overly helpful valuation metric in a lot of cases. Where it can be helpful, is in bad markets when companies start to trade at or below book value. It doesn't happen often but can be a good 'trigger' or signal for when one should start buying.