Cheapness versus value

With lots of sophisticated investors poring over the market though, not everything that looks like a bargain may in fact be one.

It could be, for example, that some UK shares are cheap precisely because their long-term prospects seem less attractive now than they did before.

Even if I earn juicy dividends, I could lose money if the value of my portfolio falls.

Buying into Direct Line for its handsome shareholder payout five years ago, for example, I would now be earning no dividends. They have been cancelled. To boot, my shareholding would be worth 43% less than I paid for it.

So when looking for shares to buy, my focus is on finding companies with promising long-term commercial prospects and a share price I think significantly undervalues them.