Secret of Value Investing

Have you heard about value investing?
Are you a value investor?
Do you know how you can be value investor?

If the answer of the above questions are NO, you must read this blog.

A value investor always looks out for different investment option available and if you are also looking for the same then you must read my previous blog – Investment Opportunities in India.

Every investor hears about value investing very often but few of us know how he can become one of the value investor. Below is the definition of value investing:

‘It is is the philosophy of investing in a security when its share price undervalues its intrinsic worth.’

As definition may sound very simple but to be a value investor one will need very high level of discipline, passion and determination. Below are four points which will help you to be a value investor:

1.) Systematic Investment Plan(SIP): The key to value investing is doing regular investment in share market. I am not saying to set up automatic SIP in equity but one should carefully select the share and then he should invest in it on regular interval at right price. It will increase your net worth regularly.

2.) Buying stocks which are out of favor: Value investor always looks for such stocks which are available at very less price in comparison to their intrinsic price. A value investor seeks to buy a company when it is down and out, provided the price is right. One may find many companies whose share prices are depressed, at any point of time. This could happen on behalf of several reasons like quarterly results, unexpected charges, changes in leadership, dull products, etc. A value investor evaluates the drop in price with the news that is supporting the same. If the investor’s evaluation depicts that the market has overreacted (as it usually does), he or she would pick up that share and hold it out. By this you increase your chance of good returns and lower you risk.

3.) Business Owner’s perspective: One must evaluate the stock from a business owner’s perspective. Imagine you already own the business (you will, if you buy the stock) as a single share of stock also represent the part of the business. So, when you own a business then you don’t look for selling it in few days, week, month or even years. Your outlook for the business should be for 5-10 years. In fact you should buy the share of the companies which you never want to sell in your life. It means buy the share which you want to own for your lifetime.

4.) Controlling Emotions: Prerequisite for performing a value investment covers some strict methods that are based on facts, figures and reasoning not on the market hypes/news. Never forget that the majority of investors lose money because they did not control their emotions. One should not sell on the news or hype basis, this is the work of traders not of value investors. Value Investor normally invest in the financial struggling companies but had enormous brand power and assets.

‘Be greedy when others are fearful and be fearful when others are greedy’. – Warren Buffett

There are many parameters that you need to check for selecting the company like P/E value, book value, market capitalization, profits & loss statement and many more (which I would be discussing in my forthcoming articles). But to be a value investor you must inherent the above mentioned four qualities. These are very basic qualities which one should remember; though they are very tough to follow as one lives in an environment which is bombarded with lot of information, news, analyst’s views etc. One must keep his faith in the companies selected.

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Happy Investing!!