2 years ago
How Value Investing Can Boost Your Portfolio
Author: Arjun Khanna
Editor(s): David Sun
As investors, many of us are taught to “buy low, sell high” when putting our money in the stock market. But, are there any other approaches that could diversify our investing portfolio and make us smarter investors? That is where value investing comes in.
Value investing is when an individual purchases stocks sold at less than their intrinsic value. This means that investors believe a business will recover and make gains when it bounces back, giving them a positive return on their investment. There are a few things to consider when looking at the value of a stock, rather than its price. For one, investors often react “emotionally,” or the price of a stock can dip very low solely based on market predictions rather than actual changes in the company. Those who can put aside the current state of a company and look at its overall values are bound to be successful. So if you are hesitant about investing in a company solely for its value, it is important to remember that a trustworthy company will eventually prove its worth when its stock price bounces back. While this cannot be said about all companies, it makes it all the more important that you do your research before investing in a company based on its perceived value.
Steps to Begin Value Investing
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Complete a thorough analysis of the company, along with its volatility in its last prices to make sure that you are making a reasonable assumption that its stock price will bounce back.
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Next, you should take into consideration the financial statements of the company. According to Forbes Business Magazine, valuable companies often have “lesser growth potential compared to smaller, younger organizations.” This means that other investors can often overlook that stock, which is a mistake.
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Finally, there is the concept of Contrarian Investing. This means that you buy stocks that others are selling, and sell what others are buying. Many successful investors know not to fall victim to the common investor's fear and to make confident decisions when putting money into a business.
Wrap-Up
Overall, value investing is a very important skill that can help you diversify your portfolio and make more oddball investments which can often result in large cash returns. Although it is a lesser-used strategy, as long as you thoroughly consider a company's previous history, value investing will result in a positive return on your financing.
Image Source:
Value Investing. Forbes, 12 May 2023, www.forbes.com/sites/investor-hub/article/
what-is-value-investing-and-4-best-strategies/?sh=4a200f9f732f. Accessed 1 Jan. 2024.