Stock Trading can be a very complicated and complex task. If you make wrong decisions over and over again you could lose most or all of your hard earned investment funds. Stock market trends are a fluid process that makes it difficult to predict and make decisions on in both the short and long term. So does this mean that an investor is just rolling the dice when it comes to stock purchases? The answer is ‘no’ because there are tools available to help investors; one of these is called VALUE INVESTING.
What is Value Investing?
It is best to define value investing with both a short and long definition. The short definition is to invest in a particular stock when you have determined its current share price is highly undervalued when compared it to its intrinsic value. The longer definition is to use a company’s historical balance sheet to provide you with information on a particular stock to see if it is now undervalued or less than its perceived intrinsic stock value. When you build in a small margin of safety, this type of investing tends to work well.
Tips and Strategies to Use when Value Investing
Value investing is mainly to be used by investors who can afford to leave their stock investments untouched for long periods of time. The reason for this is that it often takes time for the value investment stocks to reach the full potential you had foreseen for them when you made your stock purchase. Not sticking with these stock purchases long term often leads to no return on investment and quite possibly to a loss of money.
A good rule of thumb for value investing on stock trading is to look for a company that has current assets that are at least twice as high as the company’s current liabilities on the balance sheet. This is often a good indicator that a stock’s value will rise soon. The exception to this rule is if you purchase stock in a company that has used their balance sheet assets to make an investment that could be very profitable.
When value investing in stocks, many successful users of this method search for a company that shows a growth on earnings around the seven percent range when you look at the company’s earnings over a ten-year period. Long term growth is great indicator of a certain stock’s value and of its ability to correct itself than is looking at a stock’s short term growth or loss.
So value investing can really work for you if you learn all that it involves. Use these tips and the advice on how to keep safe margins when it comes to value investing and it will be a strategy that should work well for you on your long term stock trading.