Value Investing

By definition , value investing is the process of selecting stocks that trade for less than their intrinsic value . A value investor will be selected stocks with lower than average price - to-book or price -to - earning ratios . Of course it is not as simple. Value investing is the cornerstone of long-term growth . Those who practice it survive the ups and downs of the market and are more likely to emerge wealthy than those who drive the market, basically , because of the higher quality of the companies under the terms of the value investor. Value investing is mainly concerned with getting the most profit at the lowest cost . The basis of value is profit. Value investing is an investment style which favors good stocks at great prices over great stocks at good prices . Value investor extraordinaire Warren Buffett has used this style to become a billionaire .

It is important to keep that value investing is not concerned with how much in mind the price of a stock has risen or fallen se , but what is the "intrinsic " or inherent value of the stock , and is currently trading under that price , ie at a discount to the net asset value. The key point here is that if we look at shares traded at or above their intrinsic value , the only hope of obtaining value is based on future events , because the share price represents what the company is worth . However , when it comes to stocks that are undervalued , or available at a discount , unforeseen events are important in that without new revenue or additional earnings , the shares are already " ready " to return to the inherent value that they have back.

The question is , of course, is " why stock prices do not always reflect the true value of the company and the intrinsic value of the shares ? " In short , value investors believe that stock prices often mistaken as indicators of the underlying value of the company and its shares . The efficient market theory suggests that stock prices always reflect all available information about a company , and the value investors refute this with the idea that investment opportunities are created by disagreements between the current stock prices , and the calculated intrinsic value of that inventory.

Finding value stocks

Value investing is based on the answers to two simple questions :

1. What is the true value of this company?

2. Its shares can be purchased for less than the actual (intrinsic ) value ?

Obviously, the main point here is , " how is the net asset value determined accurately ? " An important point is that companies are undervalued and overvalued regardless of what the global markets are doing . Every investor should be aware of and prepared for the inherent volatility of the market, and the simple fact that the share prices will fluctuate , sometimes quite significantly. Benjamin Graham has often said that if investors are not prepared to accept without becoming littered with panic , a decrease of 50 % in value then perhaps invest not for them ... or rather , successful investing , because it often takes considerable losses in a particular security before profits are made ​​, because the idea that value investors do not try to time the market , and focus on the underlying fundamentals of the companies. Moreover, the quality of the companies targeted by the screening methods value investors may be in the long run , less volatile and sensitive to market " panic " than the average stock.

This is also a two- way road of species. On the one hand, there is no point in worrying about depressions , upturns , and recoveries due to the underlying quality of the investment value . On the other hand , investment should be made only in companies that can thrive and do well in any market environment . Do solid investment research and making equally solid investment decisions will be much more than trying to predict the markets take investors .

How many different files ?

In terms of diversification , there are many differences exactly how many shares a solid portfolio should be made up . My personal opinion is that there should not be as much stock as part of a normal mutual fund. Many will disagree with this , but what it's worth , I think that owning a portfolio of 100 , 200 or even more companies not only serves to reduce the risk but it really is the possibility of reward is limited. Also, as Warren Buffett has said many times, the more companies you own, the less you know about each one.

As I write this , there are 42 pieces featured in our portfolio . This number may well grow in the coming months , because it may decrease in number , but keep one thing in mind , from the thousands of companies available for purchase, only a very small percentage meet the stringent requirements of the diligent value investor . This is both a blessing and a curse . Very often , there is just nothing to buy , and this is fine . To avoid falling into the trap is to reduce your wishes for a stock when there is simply nothing to the normal requirements . This is how much an investor has fallen into making bad investment decisions , stabbing money in companies not really sufficient for their portfolio , and it will certainly have a long term effect on earnings