Value Investing is a pretty simple investment strategy. You do not need to have extensive financial knowledge, just understanding the basics will do. You do not even need to analyze charts. All you need is common sense and patience along with some money to invest. If you are willing to read and do some accounting, you will easily be able to become a value investor.
Value investing is something that a lot of people do unknowingly on a daily basis. When you know the actual value of a product and you save a lot of money by purchasing that product when it is on sale that is the soul essence of value investing. For example if you want to buy a TV and find that it is not on sale, you will wait for the time when it is on sale. Even though prices are slashed, the product itself does not depreciate in value. The TV remains the same and the quality is the same, you only pay less because you waited for a sale. Similar situation happens in the stock market as well. The fluctuations change the price of stocks but the stocks remain the same.
While a TV sale can be predicted on a regular basis, a sale in the stock market cannot be predicted and it can happen at any time of the year. You know that TV prices will be slashed during lean seasons, but it is difficult for anyone to determine the actual timing of a sale for the stock market. But you can conduct your own research and determine when you can get stocks at bargain prices.
Take for example a successful investor like Warren Buffett. Buffett is an individual whose success is derived from buying stocks when others sell. In 1964, Buffett purchased stocks worth $13 million of a troubled American Express. In 1963, a subsidiary of American Express was defrauded $150 million by Allied Crude Vegetable oil. This subsidiary was to lease tanks for storage of vegetable oil in their warehouse and they issued receipts attesting the fact that they had in their possession drums of oil. But these drums turned out to contain nothing but seawater. This subsidiary was on the hook for $175 million which was ten times the annual earnings of the credit card company. Their stock prices fell by 43% when this news was made public. But Buffett conducted his own investigation and learned that customers still continued using American Express cards. So, he quietly purchased stocks while people kept selling their American Express stock due to plummeting prices.
However, it is hard to predict when stock prices will drop so that you can buy certain stocks at lower prices. You will have to bid your time and wait for your opportunity to do so.
While Warren Buffett made value investing his lifelong passion and is now worth $65 billion, you too can quietly make a lot of money through value investing. Spend less than what you earn, save your money diligently and when the opportunity strikes, invest your money cheaply in great companies because it will pay off in the long run. It is a pretty logical and safe formula that will lead you to long-term success. However, value investing is not only limited to well-established companies, you can earn similar returns by value investing in smaller companies that are growing well. Investing in such companies offer lucrative compounding rates that will sum up to greater returns in the future.
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