Value investing is the strategy of investing in undervalued stocks trading for less than their intrinsic value. It is based on the belief that the market will react to good or bad news resulting in stock price movements in your favour.
Well, imagine buying a Rs 20 chocolate from a superstore near you and then buying the same chocolate from your local store for Rs 18. As a businessman, wouldn’t you buy Rs 18 chocolate, sell it for Rs 20 and then make a Rs 2 profit? Well, that’s what value investing is—buying low, selling high.
The basic concept behind everyday value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality.
In the sense of the stock market, as a value investor you would focus on buying stocks that are undervalued, waiting for the right time to sell them off and reap the benefits of your patience. However, millennials don’t buy stock as a long-term investment but rather as a quick cash option, which is not intelligent investing.
Now, if you are wondering how to take the first step towards value investing, well it’s simple.
Usually, when you invest in equity, you find the right company first. Similarly, as a value investor, you have to find the right company, the right stocks to invest in, keeping in mind the companies that will prosper in the days to come, whose stock price is low and which ones are doing well but are not known to many. So, basically, you have to analyse the company to find the best investment option.
To reap the benefits in future, you have to evaluate the nitty-gritty of the company, analyse the annual reports from the past four-five years and see the trend. Is their profit growing? Are they acquiring assets? Do their assets value more than liabilities or vice versa? All these questions as a value investor will bring you profits in the future as you understand the company’s trends and why it is undervalued.
Do your research on:
- Its long term plans
- It’s business policies
- Financial structure and reports
- The team- Managing director, CEO, CFO, other members
You found the company, evaluated the annual reports, and found the undervalued share, well its time to invest in the stock. Don’t put all your eggs in one basket, but invest and make the share a part of your portfolio for the long term. Patience is the key to value investing.
Value investing is not for everyone. To some, it might feel like a slower option to earning, but there is wisdom behind the idiom “slow and steady wins the race”. As a value investor, this should be your motto: to earn profits, a steady income, and low risk.
For excelling in value investing you need to have strong research and regular updates about the stock market. What if you can have access to stock market updates in 50 words with just one click?
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