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Last week I wrote of the cheap fundamentals approach that I developed in my investing career which minimises the downside risks of buying shares, an approach that characterises selections for my Value Investor readers. Okay, we have identified a list of shares that satisfy the requirements of cheap fundamentals. We have minimised the downside. Are they all going to be great value plays? Almost certainly not is the answer. Many shares have cheap fundamentals because they deserve them. The starting list will therefore very likely contain shares that will be of little interest, despite appearing superficially to be attractive. How to weed out the poor ones is the topic of this article. Time to maximise the upside of those shares whose downside has already been minimised. A share whose fundamentals appear cheap, whose share price appears to have been undervalued by the market, must have some additional reason for it to go up, to realise or unlock the value. I call this the outer. The most common outer is rising eps. Without this the shares may stagger along for years, going nowhere because there is little reason or incentive for anyone to buy them. All right, you'll still have the good yield - one of my pyad factors for last week's article remember - but value trading shares are being bought to make capital profits, not mere income, valuable though that is. In most cases, analysts will publish earnings per share forecasts for the next year or two. It is highly desirable that value shares possess rising eps figures. Try to find at least 20% increase over the last actual figures from the company. You won't find it too often with value shares. The more analysts that publish forecasts the better, because it improves the chances of accuracy. Larger companies will usually attract more forecasts than smaller caps. However, exercise a healthy scepticism and never take forecasts for granted or attribute excessive accuracy to them. Forecasts have a nasty habit of not being met and the general record of analysts in this regard is not too good. Give much greater emphasis to the immediate year ahead; anything further is of less use because there are too many uncertainties. Pay great attention to directors' comments for forecasting. I find these to be a very good source of indicators as to the likelihood of rising profits. Directors are often rather cagey, understandably reluctant to commit themselves too much in case they are shown to be wrong by the facts. Study directors' reports to familiarise yourself with the language of directorspeak. Try to learn reading between the lines. An interim report may say, for example: "Profits for the year are unlikely to be less than last year." This is quite positive, in fact, suggesting a decent rise is on the way. Compare this with the forecasts and see if the two are compatible. Equally and opposite: "Profits for the year are not expected to match last year" is the kiss of death. I probably wouldn't buy the shares with eps as the outer unless perhaps it was a strong asset play to compensate. Those are easy ones. But what do you make of this piece of classic directorspeak: "The company is repositioning itself to take advantage of changing markets"? I interpret this as meaning that eps is unlikely to be ahead in the coming year and may even be static or falling. The director is trying to justify a lack of rise in the coming year. Again, compare this with forecasts to see if they are saying the same thing. There are other outers of which perhaps the most common is the asset play. Here, the investor looks for shares that are trading very much below asset value in the belief that this factor alone will cause the shares to rise. Eps and yield may be of little importance here. The company may even be making losses. The cheap assets themselves will be the anticipated outer and will probably consist mainly of valuable items like cash, investments and property. My pyad approach looks for P/TBV under 1 as its most important feature in any case but if you are going to forget eps then you need to adjust by finding a greater discount to assets but attractive assets, as mentioned above. The idea with this kind of primarily asset based value play is that sooner or later something will be done to make better use of those assets than the existing situation. Perhaps a reorganisation will be instituted by new management or a bid will occur. More commonly the share price simply rises because more of the market realises that the share may be too cheap. However never buy a value share with bid prospects alone as the anticipated outer. As I wrote recently when commenting on the disproportionately high number of Value Investor selections that were outed by bids at good profits, bid prospects are thrown in automatically with value shares so you don't need to expect them as the outer. Self belief is important. You have to believe in yourself almost without question. This can be very, very difficult when everyone is against you. You keep wondering: well, how come nobody else has noticed how undervalued this share is? The answer is simple really. The large majority of investors are fashion victims, trend followers, both amateurs and pros alike. But some go their own way and amongst these are the value investors. If you want to do better than the rest, you have to do something different to the rest, remembering that the performance of the rest is not going to be too exciting long term. Maximising the upside is an essential requirement of successful value investing though it is secondary to my bedrock necessity, minimising the downside. These two requirements of value investing are like the fists of a great boxer. Rely on only one of them and it's like you have one hand tied behind your back. You have some punch, but you will win only a limited proportion of the fights. But taken together they will deliver the knockout blow that will win most encounters. But even then, you'll still take an occasional blow yourself. There are no certainties in the market, only varying degrees of likelihoods, varying opportunities with differing odds against their success. My value strategy aims to locate the better odds plays. This is the approach I have used in my personal investing over many years. And this is the approach I use to select trading shares for Value Investor. You can sign up here for a free 30-day trial.