Value Investing: An Ultimate Beginner Guide

Value investing refers to the long-term approach that considers purchasing and holding stocks within a longer timeframe. When applying value investing, an investor is supposed to select potentially profitable stocks that are very likely to have an increased value in the long run. Some of you may have heard the term “undervalued stocks”. It describes assets that may have a potential price growth but are still overlooked by the majority of traders and investors.

Becoming a value investor is different from more popular day trading tactics such as range trading where you have to buy and sell stocks the same day or week. Stepping into the value investing clubs means planning a longer strategy and holding stocks until the asset will guarantee a good return on asset ratio.

What Is Value Investing?

Value investing definition supposes purchasing currently undervalued stocks. The main challenge here is to recognize assets that can possibly rise in value. On the other hand, a company gets an opportunity to benefit from scaling options along with a chance to grow and highlight positive balance sheets with clear profit perspectives for the future. In other words, investors keep all aspects of the fundamental analysis under control.

Stock prices are affected by different parameters and usually fluctuate due to geopolitical events, news, financial reports, and other factors. This fact also influences the market sentiments in reference to a particular stock issuer or enterprise. While day traders are mainly eager to make a profit on short-term price movement and make the difference on small value discrepancies, value investing considers long-term trend movement and share issuer fundamentals. It means that as a value investor you will have to deal more with fundamental analysis rather than technical analysis.

The main mission is to get a so-called “discount price”. To do so, investors usually have to wait for the stock price to move lower compared to its intrinsic value. When it does, you can buy the asset.

Is Value Investing Dead?

Value investing was initially introduced by such big names as Warren Buffet and Benjamin Graham. They are actually the first noticeable members of the value investing club. The approach became extremely popular during the 20th century.

Today, modern traders and investors still wonder if the tactics work under current market conditions. The majority of beginners opt for short-term techniques craving bigger profit right at once. The desire of gaining is still the dominating force that makes newbies opt for simpler (at first sight) at faster strategies.

However, that does not mean value investing is dead. What’s more, it is still the #1 choice for the majority of more experienced investors. Here is how the tactic works:

1. Searching for the stock type. The first stage for value investors is to identify specific stock types. They can be either blue-chip or penny stocks. It depends on your expectations and the level of trust, the company’s reputation, and gaining opportunities. Any stock has the potential to bring a good profit in the long run. All you need is to do research considering major fundamentals and parameters that refer to a specific trending sector.
2. Analyze the stock. A long-term investment is all about fundamentals and in-depth research. You have to keep in mind every factor that can have an impact on the share price. Besides, investors must not ignore the possibility of systematic risks alongside company growth prospects, financial strategies, and plans, etc.
3. Slow returns mean steady profit. Quick returns generally refer to stocks within a market with extreme volatility. As a value investor, you might want to look for a safer and more stable option with a chance to benefit from a steadier return. A good idea is to use specific instrumentation such as P/E ratios to calculate the potential return.

The Bottom Line

We can definitely say that value investing is not dead. It is a great option for people looking for safer investing opportunities featuring a low though steady income. The idea is to look for undervalued stocks that will grow in price. The strategy relies on fundamental analysis and several simple stages to apply the technique. Like with every investment plan, the strategy supposes portfolio diversification as the way to ensure steadier returns and multiple revenue channels.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.