Investing can often seem daunting to many people who want to start putting their money to work for them. This is largely due to the perception that investment opportunities require extensive knowledge of the financial markets accumulated over many years. If this sounds remotely like you, terms like the stock market, stocks, and shares are likely to make you feel a little anxious and self-doubt. Fortunately, however, this does not have to be the case. The truth is that there are several lucrative investment options and strategies that even beginners can benefit from.
About value investing
Value investing is an investment strategy that does not require universities to know the financial markets in order to benefit. Instead, by employing the very doable fundamental principles of this strategy, you will also be using the tips and tricks used by the likes of Warren Buffet and Benjamin Graham to invest based on intrinsic value and increase your wealth. These principles include the following:
– Understand that companies have an intrinsic value that can be bought and sold
– Define your safety margin
– Rethink the efficient market hypothesis
– Lead from the front
– Be diligent and patient,
Here’s how each of these value investing principles will work for you.
1. Understand the intrinsic value of companies
When it comes to investments, every company has an intrinsic value that is often reflected in its financials. Stocks and shares are the avenues through which the average person can purchase the value of these companies. It is important to note that the prices of stocks and shares can fluctuate even though the intrinsic value of the company remains stable. In addition, prices and sales of these stocks and shares are not advertised per se. As such, you’ll need to do a little detective work to find stocks and shares in stable companies that are selling at low prices, which will ensure you earn more in the long run.
2. Define your margin of safety
The gains and losses when investing depend mainly on your ‘margin of safety’. You are likely to make more profit on a healthier margin, as your margin of safety lies in the difference between the value of the shares and how much you pay for them. So a share may be worth $50.00, but you bought it for $10.00. In this case, your margin is $40.00 ($50.00 minus $10.00).
Essentially, you maximize your margin of safety by buying your stock or shares at lower prices (as low as possible) so that even if the level of growth is lower than expected, you can still minimize losses and make a profit on your investment when the time comes. time to sell. Once you buy your stock, simply wait until it reaches or approaches the actual (intrinsic) value.
3. Rethink the efficient market hypothesis
Unlike value investors, efficient market hypothesis investors believe that stock prices reflect the true value of a company. However, value investors do not adhere to this assumption. Instead, they believe that stock prices can trade below or above their true value. It is this true (or intrinsic) value that becomes the focus of value investing.
4. Lead from the front
Due in large part to the fact that value investors do not subscribe to the Efficient Market Hypothesis, they are less likely to follow the investment patterns or habits of the general trading population. That is, they are less likely to buy when everyone else is buying or sell when everyone else is selling. Instead, they can hold their ground or sell when others buy, for example.
5. Be diligent and patient
Finally, once you’ve started the value investing process (ie, you’ve bought stocks or shares in a particular company and are now active in the stock market), you need to be patient to reap your reward. It is likely that you have bought their shares. for prices below the real value of the company, so you will have to wait a while to see the dividends of this investment, in addition, you will have to be diligent in observing the market and evaluating the value of your investments.