Value investing is the best long term investing strategy. Used by the investors who believe in the fundamentals of the company and its long term growth rather worrying about the present short correction in the price of the company. Value investing has many benefits and is considered to be less risky when compared to other strategies when you have understood and analyzed the fundamentals of the company properly. In this article, we will discuss the Five mantras of Value investing in Stock Markets. This will make us understand the benefits of value investing.
To become a successful value investor you need to follow the below mantras which will help in creating a long term wealth. You can use value investing by assigning it to a particular financial goal you wanted to achieve and the time frame that you have during which you can stay invested. Remember that value investing needed patience and you cannot expect returns in a fortnight. There is a long way you should keep on invested to realize the profits. Five mantras of Value investing in Stock Markets will tell and help you in learning value investing.
Five mantras of Value investing in Stock Markets
Power of compounding
#1 Five mantras of Value investing in Stock Markets
Power of compounding is visible only when you are invested for a long time. Its power will just surprise you and you will not regret if the asset you selected is of good value. Most of the investors whom you might be following when you started your investing journey will for sure tell you the power of compounding. Power of compounding is so often spoken and only a few will truly stay to make use of this power. Take for example the so-called Biggest investor in the Indian stock market, Rakesh Jhunjhunwala who always reiterate the importance of compounding. It is known and proven fact that equities over the long run had overperformed the market, provided that the company is a stable company with consistent growth. Such companies are to be identified by proper analyses of fundamentals of the company and the growth prospects in the coming future.
The Margin of Safety
#2 Five mantras of Value investing in Stock Markets
Always ensure that there exists a margin of safety in whatever trade you take on. This is important to face any adverse market scenario which might come unexpectedly. As it is already highlighted that the value investing is a long term investing procedure and sometimes it takes very long for the price of the stock to move up to represent the companies true value. Hence don’t expect the price to rise soon and get your money back. You have to be prepared to keep your money invested for a long time. Always try to buy at a discounted price and avoid buying at a premium to ensure that you are in a safe margin in adverse scenarios.
Invest in a Business you Understand
#3 Five mantras of Value investing in Stock Markets
You must understand the type of business you are an investment and all the details about the business. The basis on which value investing relies is the fundamentals of the company, you need to properly understand the business. In those cases only you can truly judge the value of the company and make a proper decision. Hence choose that business which you can understand clearly. This helps you to understand the benefits of a particular business and its problems and hence you have a view on the growth of the business.
Companies with less competition
#4 Five mantras of Value investing in Stock Markets
In the long run, companies which have a monopoly in the market or enjoy a higher market share will be more advantageous when compared to the other players. for a company who is a monopoly, there are very less are no competitors in the market and hence in the future with the increasing demand, the revenues grow and the company also grows. Choosing a monopoly has always been a successful strategy in the stock market, as they have very less effect on their revenue due to market conditions as there are no competitors.
Keeping the idle cash
#5 Five mantras of Value investing in Stock Markets
Always keep some idle cash in the hand to take the chance to buy stocks at a discount in times of higher volatility in the market. This is the times when you will get the shares of a company at a discounted price because of the high volatility in the market. In value investing, we need to buy the stock when it falls below the actual value of the business. This may happen any time and we are not sure when the price falls. and when the price falls, investors will identify that and wills tart investing and hence the price will soon move back to top. Hence you need to have idle cash to immediately invest in such scenarios and make use of the situation to buy at discounts.
Bottom line – Five mantras of Value investing in Stock Markets
Value investing is one of the most successful investing strategies that completely relies on the fundamental analysis of the company and understanding the present price of the company. Analyzing the companies and finding a proper stock such that the present stock price of the company in stock markets is very less and does not represent the actual value of the company and assuming that the stock price will move in future to represent the correct value of the business. This is the main task in the value of investing. When you have identified such companies, you just need to stay invested for both the business and the stock price to rise and realize the capital gains for you.