Despite smashing one record after another this year, most think of the stock market as one big casino that will eat up their money over the long run.
In reality, when you take the time to study how it functions and act appropriately, you too can grow your capital using this vehicle.
Value investing is one of the most popular trading strategies out there, as it was the path that Warren Buffett followed on his way to making billions of dollars. Since then, countless disciples have mirrored his techniques to get prodigious results that have proven to be more or less consistent.
Companies like Kingstown Capital Management has sprung into being thanks to this school of investing, as its teachings have earned them profits by instilling the virtues of patience and rationality in the investors that work for them.
Want to achieve the same results as them? Below, we’ll run down the keys to effective value investing that if followed by you, will yield you results over the long term.
1) Look for undervalued companies
Don’t look to a company’s current price on the stock market price as an indicator of its value. Too many retail investors get caught up in euphoria or panic on the exchanges, which inevitably leads to them taking big losses.
Instead, check out what its book value is; this means doing research to figure out how much profit the company generates, how much its assets are worth, and what its potential future earnings look like.
One of the best times to purchase stocks is during a painful correction, which is when normal people are scrambling to sell everything they have.
In these times, the prices of companies that are well-put together are degraded along with all the others, making them amazing deals.
Once the economy recovers, these companies will excel as they always have, so find them, buy them up and hold on to them even if the stock market goes sour.
2) Buy companies you love
If you want to be successful in your investing endeavors, it is important to be enthusiastic about the businesses to which you are about to commit money.
It is not enough to purchase a company strictly on its fundamentals – if you aren’t enthralled about its future prospects, you won’t care enough to follow its activities closely, and any attempt to forecast the future will lack imagination.
As a result, you’ll miss out on info that could cost you dearly; if you had enough interest to follow what the company was doing from day-to-day, you probably would have noticed trouble coming, and would have taken action to avoid it.
When you are intimately involved in a company, being knowledgeable about its performance and the industry is a task you’ll look forward to rather than loathe.
3) Investigate management at all potential companies
When conducting research, figure out how tight a ship the current management runs the business.
Do they hit their goals regularly? Is there a culture of responsibility within their corporate structure, or are they constantly making excuses for poor results?
Reading through financial reports and taking in countless hours of conference calls will reveal the true picture of a company, as you’ll be able to tell whether their management has their heads on straight, or whether they have been propped up by years of an economic upswing that is about to end.