Most investment strategies can look complicated, you may be required to learn some chart reading skills that look rather confusing and learning curve may be steep or take a lot of investing courses. Looking for a simple strategy may become a priority if you want to avoid all these complexities and rigours. One of the simplest investment strategies is value investing.
In value investing, you look for stock prices that appear under-priced or undervalued based on some basic investment concepts. Popular proponents of value investing are Warren Buffet and Ben Graham.
Value investing is for everyone and you should join the band wagon too. There are various reasons why you should do so. These are discussed in the following sections.
Expensive Shares are Overvalued
Companies that are doing great tend to have stocks with high prices. The prices are not usually their true value. The demand on these types of stocks are high and people basically want to invest in a company they can trust. The issue is the management know this and they further overate their company. Returns can be lower than expected for the investor and quite disappointing.
This investment strategy is certainly suited for those with little risk tolerance limits. There is always a chance that your stocks will appreciate in value since you bought them cheaply this means making profit. You also have a chance for creating a higher margin of safety since you bought at a cheap price.
A lot of investors follow the herd and go for only the high stocks. They all follow the crowd and are scared of cheap stocks. The bad news is that the growth rate of this kinds of stocks has reduced and there is a tendency for them to go the bearish way. On the other hand, few people who are smart go for the troubled stocks. These have the tendency to go bullish. It happens especially for companies that are recovering from bad financial standings.
Value investment can be considered an art. Just like any investment strategy, it should be carefully planned. It has shown time and again that with proper planning, the gains are substantial and consistent. It is however not a get rich quick strategy and it may take years for you to be happy with your returns. It is not every stock that will work out for you. Spread your investments. If it worked for the likes of Warren Buffet, it will work for you. There are several practical experiences to point to.