What is Value Investing?

What is Value Investing?

A simple method of buying stocks that are undervalued or in simple words they are currently on a discount. 

Purchasing stocks are the easiest investment option on this planet, anyway, we complicate it by hitting all around the bush. 

Let us understand this with an example- When the supermarket announces a discount on regularly used products. We rush and purchase more, example if we usually buy 1 Kg of sugar for a month we may buy 2 kg due to this discount. Likewise, with soap, pulses, grains, toothpaste etc. 

Now, what do we do when the share price of a company that produces some of the above-mentioned price falls? Do we buy more? 

No, preferably we panic and sell.

If we can break this one habit, we can beat the best of fund managers in this world. 

Do remember to hit the follow button on the top of the page 😉 Thank you

Do stocks offer a discount like a grocery store? 

Of course, they do, however, they are termed as Crash or Correction. To make matters worse we find unfavourable publicity by all the news channels and the so-called experts. Always remember the golden rule of Mr Warren Buffet 

'When everyone around you is greedy, be afraid, and when everyone is afraid, be greedy'

I will try to make a graphical example of this to make it simple

Remember these two lessons for a lifetime and the stock market will always earn you money:

The red circles are the point when everybody is bullish and greedy this is the moment you should be booking profits (Selling). Never ever buy a stock when it is trading at an all-time high + stock market (Nifty) is also trading at its highest level. 

The green circle is the point when everybody is bearish and afraid, this is the moment you should be greedy. Always buy a stock when it is trading at a discount.  

Now that you have found the 2 golden commandments of value investment, let me help you with 5 steps to practically implement this strategy in real life:

Step no 1: Pick up 5 stocks that you like, make a note of the current market price, also note down what was the highest and lowest price of these stocks in the last one year (52 weeks). 

Where do you get this information?

Let us assume one of your favourite stock is TCS, open google and type what is the 52 weeks high low of TCS, among the many options that Google will display one website will be money control. Just hit the link and magic you will get the information you are looking for

Screen Shot to help you:

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Step 2: Now that we have the highs and lows of our preferred stocks, keep a tab of the stock using money control or any other method that you find simple, once the stock is selling at a discount, please buy.

How much to buy?

A very critical point, only invest the amount that you do not need at least for the next 2-3 years. For example, I have 10 lakh in my bank and from this amount I won't need 3 lakhs for the next 3 years. So my investment amount should never ever cross 3 lakh. Additionally, never take leverage (loan) for investment. If your broker calls you to offer a loan at a discounted price ask him/her to take the highway.

Step 3: Now that we have identified our investable surplus, do not invest everything in one stock. Remember we have picked up 5, divide your capital among them and wait for the price to correct. 

Step 4: Do not fall for the temptation to invest, standby the rules mentioned above. Always remember 

“A fool with a plan will beat a genius with no plan”

Step 5: If one of your preferred stock is suddenly trading at 15 to 20% discount before you jump to buy the stock, kindly examine the cause for the fall. Once you identify the reason, ask yourself one question: Can this reason lead to the closure of this company?

If the answer is YES: Obviously do not buy this stock and remove it from your watch list

If the answer is No: Go ahead and buy, however, buy in a staggered manner ie: my capital allows me to invest 1 lakh in one stock, so I will use 20% of this 1 lakh and continue to invest 20 - 25% as the price falls further. 

Let me give you 2 recent example to make this case through in your mind:

Case 1: JET Airways 

Q: Can this lead to the closure of this company?

A: YES Possible 

Case 2: YES Bank

Q:  Can this lead to the closure of this company?

A: NO (RBI is the regulator)

Conclusion: 

If you want help, please learn to help yourself. This article was an attempt to educate people that stock market investment is not that complex when done with proper planning and understanding.

This was my personal attempt to help you if you found this article to be beneficial. Kindly share it with your near and dear ones.

I would be very glad to hear your feedback, in fact, it will motivate me to continue my journey of blog and teach. 

Thanks and I wish and hope you make a lot of wealth from your investments. 

All the best!! 👍👍👍