Value Investing for Dummies

Want to retire wealthy, with your future and that of your family virtually assured? With the hollowing out of the middle class, you could be excused for thinking that this dream was no longer possible.

As difficult as life may be in our present economic state, those who set aside a small amount of money each month for investing still retain the potential to join the upper classes at some point in the future.

Still, it can be tough to know which investments will grow your money and which ones will light it on fire.

It all seems so confusing. It can be hard to believe, but investing heavy hitters like John Kleinheinz Fort Worth were once retail investors with a dream, just like you.

They had visions of a future filled with riches, and they realized it through making intelligent trades, having resilience during tough times, and having loads of patience.

If you want to join these guys at the top of the heap, there are basic principles one can follow to experience long-term trading success.

This entire philosophy is known as value investing, and in this post, we’ll outline the basics of how to employ this powerful strategy.

What is value investing anyway?

In essence, value investing is a school of investing that focuses on picking stocks in rock-solid companies whose price is considerably lower than their book value.

This is determined through rigorous analysis of fundamental metrics; if a given stock passes all these test, the investor purchases it with the intention of holding it indefinitely.

This a radical departure from the behavior of many traders these days, who enter and exit positions within a matter of seconds to take advantage of reverberations in the market.

Instead, we are looking for a company that is profitable now, and will continue to be so in the foreseeable future.

Research, research, and research some more

Never pick a stock because it appears to be an established player, and because there was a big sell-off the prior day. If you intend to buy a stock to add to your stable, you need to do your homework.

Research their long-term plans, review their financial reports, deep dive into the projected future of their field, and so on.

After doing all of this, determine whether they pay a dividend. Remember, we are buying and holding indefinitely, so we need a vehicle that will make us money from these investments, so it is essential that they pay a portion of their profits to us.

Don’t put all your eggs in one basket

Oil and gas seemed like the sector of milk and honey just five years ago; with alternative sources of energy a long way off at that time, buying up companies in this branch of the economy seemed like a no-brainer play.

Fast forward to 2017, and the marketplace is flooded with crude, companies are going bankrupt left and right, and the electrification of transport has industry insiders openly musing about whether O&G is now a sunset industry.

The lesson here is this: diversify your investments across a range of sectors, and you’ll avoid financial ruin.


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