How To Value Invest

Value investing is an investment strategy which involves picking stocks of solid businesses that are trading below their intrinsic value. The answer to the question of ‘How to Value Invest‘ is summed up in the adage: value investors are not buying stocks they are buying a business. It is a philosophy that involves picking companies that are solid and profitable but have, for whatever reason, a stock price that does not reflect their true value (in some cases below their asset value).

Value investing means that the investor does not pay attention to daily stock price fluctuations of stock buying trends. Instead they look at the financial fundamentals of a company and its prospects going forward based on past performance. Often this means conducting significant research to find the right opportunity but, once found, an investor buys stocks for the long term which means they are not constantly buying and selling in response to short term market signals.

Oftentimes value investors make a personal connection with the businesses they invest in and are passionate and knowledgeable about the company and the areas in which it operates. While they use standard measures to assess a company (such as its price to earnings ratio or earnings per share, for instance) they are much more diligent in assessing the quality of these financial details and reconciling them with a view of the company as a whole.

One of the key aspects of an assessment of a company by a value investor is to look at its management team. Good management can help a company weather the bad times and return to profitability while poor management can destroy a profitable company just as easily. It is an intangible asset but for some value investors it is perhaps the most important that a company has. Some investors base their entire strategy on carefully assessing management teams and only investing in those that are honest and capable.

How to Value Invest look to the long term to realize profits in the stocks that they buy and often do not have diverse portfolios. This is because once they find a good investment they go all in and keep the stock over a long term. This goes against the investment principle that a portfolio should be diversified to protect against downturns in particular industry segments. However the value investor would argue that the only motivator for buying or selling a stock is finding a company better than the ones they already own.

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