In my honest and confident opinion, investing in value is one of the best things that has happened in equity investing. At least; Benjamin Graham agrees with me. Ask Warren Buffet, I know his opinion will be no different. If your wallet stands the test of time; I must implore you to look down the path to value investing. Before digging into the benefits of value investing, let me attempt a concise explanation of the meaning of value investing.
Let me give you a list of definitions, maybe you can identify with the one that most conveys the meaning to you.
– Investment in value is when an investor invests in a company whose value is less than its intrinsic value.
– When an investor specializes in buying stocks that are strongly undervalued but have not lost their value.
– Value investors buy shares whose profit potential is much higher than their current price; this way, they are able to grow their portfolio to enviable heights over time.
– Value investing is the strategy of selecting stocks that trade at a price lower than their intrinsic value.
– Value investors believe in buying a stock when the asking price is low and selling when it is high.
Be able to excel in value investing; there are some safe shooting tools that you should be familiar with; they are proven tools that high value investors have used and still use.
At the top of the list …
Price / Earnings Ratio: The value-oriented investor uses the P / E ratio to quickly determine the value of a stock relative to a company’s income. The value investor thinks that the lower the ratio (less than 10), the better the transaction.
Strong Fundamentals: The value investor believes that in order for a business to strike a real bargain, the business must have fundamentals that are strong and healthy enough to imply that it is worth more than its asking price. The value investor considers the current price very strongly in relation to the intrinsic value and not to the historical price.
Current assets vs. liabilities: The value investor assesses the size of current assets relative to a company’s liabilities. The value investor is excited when they see a company with current assets twice as high as current liabilities.
Profit Growth: The value investor believes that a company’s profit growth should be at least 7% to 10% per year, compounded over the past 5-10 years.
Earnings per share: The value investor considers EPS as an essential tool that allows to estimate the value of a share in relation to the sale price. Higher earnings per share; the better the deal.
Why do value investors like to invest in value?
1. It reduces the risk: the risk of a share’s underperformance is greatly reduced thanks to the “guarantee indices” explained above.
2. The profit possibilities are great and guaranteed
3. The power of compound interest
4. Obtain discounted inventory.