A Beginner’s Guide To Value Investing

Investing in stocks is already common, and most investors in this arena know the importance of value investing. With this venture, you can build your portfolio quickly. However, you must do it right to ensure you’ll reap the benefits of value investing. That being said, here’s a guide if you’re starting this.

Unlike the usual concept of trading stocks in which you have to buy valued shares from already established companies, value investing is quite different. Here, you’re purchasing undervalued shares. Then, you need to hold them for quite some time until it gains traction. This means when the undervalued stocks have soared high, that’s the time you have to sell them. As a result, you could double, if not triple, your USD$100. For the whole explanation, continue reading below. 

Photo Credit: Buy Rating Undervalued Company Stocks Shares Stock Market 3d Illustration

The Risk And Its Solution 

While value investing seems a quick way to get rich, it comes with a high risk. This could result in permanent losses or long-term price decreases. The former means you could lose your investment without getting in return. Meanwhile, long-term price decreases imply the price of the stocks could go lower than how much you’ve bought them. And worse, it won’t be coming back up.

Even investors who’ve been in the industry for a long time experience such losses. But that doesn’t stop them because they know such a risk, and they also know its remedy. One of which is to diversify.

Diversifying means buying various undervalued stocks. As they say, you shouldn’t put all your eggs in one basket, and that’s true in value investing. If you want to balance your portfolio, you must not buy only one type of share. Instead, buy from various industries.

The Strategy

Like other investments, there are various strategies in value investing. It’s okay to follow one or all of them. The key is to understand the standard rules that come with such. Doing so will also help you weigh if value investing is better than day trading. And these tips will help you learn how to make a strategy work even before you decide to use a specific strategy:

1. Don’t Let Fear Overwhelm You 

It’s natural to become fearful when thinking about the possible losses you could experience, but don’t let the fear overwhelm you. When this happens, you’re likely to sell your stocks impulsively. With such, you may not only lose some of your investment, but you’d lose the chance of earning from them.

Worse, you may not start value investing because you’re afraid to lose. When you let it dictate your decision, you can’t move forward.

2. Think Long-Term 

The solution to fear is thinking about the long-term benefits. Hence, use funds that you’re willing to lose. You may want to start low, then apply a buy-and-hold strategy. Remember, undervalued stocks could take time before their price go up.

Photo Credit: Two investor analyzing value on investment calculating quality of numbers.

3. Find The Stocks 

After prepping your mind for the long-term, it’s time to do your research. It’s not just ordinary research as this requires an in-depth one. You have to analyze these undervalued stocks by comparing them to their current stock price. You also have to learn its intrinsic value so you can have a better comparison. That way, you can weigh if the stocks can yield returns, even if it’ll take some years.

4. Sell The Stocks 

While buy-and-hold strategy means you have to sell it when it becomes high, there are times you need to sell the stocks before that happens. Here are some of the reasons why you may need to do sell:

• Facts Have Changed

Even if you’ve done your research the right way, some facts about the stocks could change. And these facts could negatively affect the future of the stocks. For instance, if the growth or management has deteriorated, it may be time to sell the shares before they go lower.  

• Facts Can Be Incorrect

At first, the facts you’ve learned about the stocks may be positive. But as times go by, the company may not be true to its promises. For instance, if they aren’t going with their business prospects, it’s time to sell. You’re more likely to incur losses because their programs aren’t being pursued, which could hinder their growth.

Conclusion

That being said, start your value investing venture now. There are many undervalued stocks in the market to choose from, so diversifying your portfolio shouldn’t be a problem. What matters is you research them. The more you learn about the company, the more insights you could get to check if their undervalued stocks can grow in the long run.