People keep on saying about investing in stocks, but many few know the meaning of Value Investing.
Value Investing in nothing but knowing about the business of a company i.e. what does company do,studying financial ratios, doing the valuation to check whether the stock is available at cheap price and then taking a call whether to buy a stock or not. In short, it is a deep and easy analysis to buy a stock.
Although Value Investing is easy but it needs a lot of practise, dedication, and hard work. It is an art which requires patience too.
To become A Successful Value Investor You Should Remember And Use the Following points in Your Life:
1) Don’t Speculate Your Hard Earned Money
“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative” – Benjamin Graham
I have seen many people who speculate about the company and invest their hard earned money without doing any home work. It is important to take stock market investing as a business. If you are not sure about the company it is better you don’t speculate about the business of a company.
2) Value Investing Is a Long-Term Investment
Value Investing is slow but rewarding technique. If you know about the business of a company and the numbers of a company are also good then you can invest your money in the company. Remember, value Investing is a long-term investment where your money will appreciate after few years.
So don’t get into short-term trading where you buy a share today and sell it either today,tomorrow, after few weeks or months. Just wait and let money work for you. As it is rightly said-“Rome wasn’t build in a day”.
3) Understand The Intrinsic Value
For many people it is a new word,don’t worry I will explain you in a simple way. Intrinsic value is nothing but the true value of a company i.e. what the company is really worth.
For example, If you buy a Company For $1000, but its true worth is $500, then you have overpaid for buying the company. It means that you have paid more than the company’s true worth. Most Important point while analysing a company is to understand its intrinsic value.
4) Margin Of Safety
“Margin Of safety is buying 1 dollar for 50 cents” – Warren Buffet
One of the most important and used term in Value Investing. It was invented by Benjamin Graham in his Book“The Intelligent Investor”, who is considered as a father of value investing.
For Example, If you buy a share of a company for $100 and the Intrinsic Value of a company is $150. It means there is a margin of safety of $50. Margin Of safety is important because valuation is an imprecise technique and future is also unpredictable. This technique gives us extra safety for our mistakes as a human being.
So when you see a price of a share of a company, first determine the intrinsic value of a company and if it is lower than the price then apply some margin of safety to it for more cushion to your investment. I hope you have understood the concept.
5) Don’t Forecast About The Market
It is difficult to forecast about our life, then why to waste our time in forecasting about the market. Future is always unpredictable and if you have understood the business and done a thorough analysis, measured the intrinsic value and applied the margin of safety then you will surely become successful in a stock market.
6) Don’t Follow the Crowd
It is very easy to get influenced by what other people are saying. Be careful while listening to the expert in the stock market because at the end of the day it is your decision whether to buy or not a stock.
If you do your own independent research , there are more chances that you will beat the market and earn a good return.
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