Value investing is a slightly more advanced strategy when it comes to investing. It is where the real money in stock market trading is. However, it does take training, and a patient mindset to accomplish it. This is why we recommend that if you are a beginner, standard contracts (CFDs and ETFs), or funds would be best for you. However, if you have advanced somewhat we would recommend looking into value investing.
What is value investing?
Value investing is the tactic of finding undervalued stocks, and taking advantage. In other words, you want to find the companies that are doing quite well for themselves, but no-one else has noticed. These companies are likely trying to attract new investors by keeping their prices low for now. As time goes on, and more people invest in the business, the price of their stocks will go up. This will lead to major profits. It is the kind of system that Warren Buffet took great advantage of in his early career.
Since the value of the assets will be so low, a company going belly up is no worry. The losses investors could make in these kinds of companies will be minimal.
As we said, though, it takes a lot of time, patience, and skill to find success here. Markets sometimes take a long time to correct and show where the true value lies. You also cannot ‘pray & spray’ and hope that any small company will succeed. This is how we end up with situations where investors lose money.
It was after the great depression that value investing became important. This is because many new companies burst onto the scene and grew with the economic growth. From then on, it has kept developing. Value investing is the basis of many aspects of fundamental analysis. Evaluation of a company’s profits, and their inherent value are examples of this.