Value Investing: Understanding the Long Term
There are many ways to invest in the stock market. If you just rely on commercials or online ads it can be easy to assume that everyone who is making a fortune is doing it through active trading. In reality, this is far more of a marketing message than how things actually work. Smart long-term investing is the way the majority of people are going to find success. This requires an understanding of the fundamental influences on the market and how to take advantage of them.
Major Value Investors
Value investing is a concept that has been around for nearly a century, but it is just as relevant today as it has ever been. Have doubts? Ask Warren Buffet – a textbook example of using the value investing concept developed by Benjamin Graham.
The main focus of value investors is to find undervalued assets. This doesn’t always mean cheap stocks. Quite the contrary. A bad stock is a bad stock. That has nothing to do with finding a good deal. If a stock is selling for $1,000 a share but the fundamental analysis says it should be closer to $1,400 then that is considered a good option using value investing. At the other extreme, you will almost never find a penny stock that makes sense with value investing. It’s a penny stock for a reason.
Aside from Warren Buffett renowned market investors like Walter Schloss, Christopher H. Browne, Peter Cundill, and Charlie Munger all have used value investing to build remarkable fortunes. As well as reputations as experienced and top-notch investors.
Looking at Value Investing More Closely
If you spend $8 for $10 of value, you’re worth 20% more than you spent right off the bat. This is before dividends, before stock splits, before buybacks. In other words, money is made from buying. In theory, at some point, the market will also catch up to the fundamentals. Overvalued companies will lose stock value while on the other side undervalued stocks will gain in those situations, adding even more wealth to a value investing based portfolio.
In real estate, the idea can be seen even more easily. There’s a house that is appraised at $200,000. Other similar properties in the same neighbourhood are selling for around that price. For whatever reason, the owner needs to move quickly and the price is only $150,000. When you buy the house, it’s already worth $50,000 more than you paid for it because it was undervalued.
Fundamental Analysis Is the Key
There are a few places where you can learn about fundamental analysis if you’re not familiar with it. One is to simply jump online and look for resources on the topic like we have here. Another route is reading all the old letters Warren Buffett published that he sent to investors. Finally, while trading Forex is not a long-term steady strategy, learning how fundamental trading works in Forex can be useful to learn the concepts of how to read charts, graphs, and understanding what data matters – and which doesn’t.
Is Value Investing Right for You?
Value investing courses make sense as a strategy because the focus is on only buying those assets that are selling for less than they’re worse. When this is done successfully, big long-term profits tend to be the result.