May 17, 2006|
Markets: Time for 'value investing'?
After the carnage witnessed on the first trading session of the week, the markets displayed immense volatility yesterday, yet managing to close in the positive. The pressure was triggered by apprehensions regarding the Fed continuing with its stance of raising rates, which could have a restrictive effect on global economic growth.
This makes us reaffirm our belief that investing is a long-term game that requires not only skills but also patience. The factor, which separates investing from speculation, is the well thought out planned approach for deploying funds which speculation lacks. Speculation is about maximizing your return in the shortest time (though undertaking high levels of risk), while investing is all about garnering adequate returns from a well thought out investment strategy.
Various investment styles have been popularized to beat the street in the past. One of the most popular styles, which date long back, is 'value investing'. Benjamin Graham, the father of investing, popularized this style of investing, which is the method of picking up undervalued stocks and holding them over a long-term. The value of the stock is worth the future cash flows (that can be taken out of business) discounted to the present value. Simply put, value investing means (attempting) to buy 'something' for less than it is real worth.
Parameters of value stock selection
Good value means buying of shares of companies, which have low price earnings ratio, high asset backing, high dividend yield, robust business model and clear and visionary business mission. The management creates value through its policies. Thus, value investing dwells into all aspects of business and tries to visualize the impact of business policies on the earning potential of the firm.
Value investors also look for bargain prices (priced low for temporary or irrational reasons, under-priced in relation to the company's potential). According to Benjamin Graham, value investing consists of patience, common sense and in-depth analysis of published information. It also involves contrarian investing, which says - 'hunting when hunters have left.' Value investors look at margin of safety. They look at buying stocks at maximum discount possible on their intrinsic value. Though the subject of intrinsic value is a matter of subjectivity. Value investing involves separating emotions from investing and investing on a common-sense basis. The investors following value investing ignore market sentiment, short-term swings and other factors affecting stock prices.
Thus in conclusion, you, as an investor, need to compare intrinsic value of the company as a whole to its current market capitalization. Success will, however, depend on skill in accurately determining the intrinsic value. It can also be said that to be a good value investor, one needs to harness the qualities of a contrarian investor, a patient investor, a rational investor, an analytical investor, and above all, a long-term investor.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 21, 2017
One of the hallmarks of successful investing is to look out for companies that have a unique and enduring moat.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
More Views on News
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 10, 2017
Bitcoin hits an all-time high, is there more upside left?
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407