Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
The primary tenet of value investing is to to buy low and sell high. If done properly, average annual returns on an investment fund will exceed 30%. Value investing requires the investor spend some time creating a decision matrix for each pool of similar companies. This model is then implemented and updated on an annual basis. Value investing is in effect the exact opposite of day trading. Value investing takes advantage of time and this reduces the overall stress for a fund manager.
The first is risk reduction by only working with high quality stocks; in general, work with the top 2,000 companies worldwide. Absolutely avoid penny and small cap financial instruments. Top companies reduce risk significantly due to their stability of earnings. Stability of earnings is the most important value derivative in business.
Secondly, value investors rely on intrinsic value to set the buy/sell range of market price for the respective stock. Intrinsic value is the core worth of a company. There are several different intrinsic valuation formulas and their application is a function of the company’s business model. There is no single universal intrinsic valuation formula.
In addition, value investors use financial analytics to validate operational and financial performance. This analysis allows the value investor to determine the most likely market price recovery point and its associated time frame to recover.
Finally, patience is required. Time is on the value investor’s side.
Value Investing – Value Investment Club
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth.
Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs and resources to use when you create your own pool;
- Access to the existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.