We all enjoy and take great pride in purchasing valuable items or merchandise during a sale season at a marked-down price, knowing full well that they are temporarily being undervalued. That is, we simply spot an opportunity and strike while the iron is hot, or in the case of value investing, when the price is right. This notion upholds the theory of value investing in the most succinct of ways. As described by notable value investors of our world, Value Investing is a strategy in which stocks of growing businesses are identified and bought when they are being valued below their intrinsic worth by the market, i.e. below their true value. This is a common investment strategy that has led to investors making critically smart investments in businesses that were underappreciated at a given time.
Therefore, upon entering the world of wealth-building and investment trading, investors might decide to opt for a value investing approach. A transition which would prove smooth if they knew the path to walk on in order to apply a value investing philosophy. As a result, a list of steps has been complied, that one must follow to become a value investor.
Research - To become a value investor, one must understand the importance of being in the know-how. Being sufficiently aware of the emerging market trends, economic changes, and sharp market reactions to rumors/news that may have caused anomalies in stock prices non-conducive to the fundamentals of a business can prove significant for a value investor to make crucial investment decisions. The ability to scout for undervalued stocks that are more likely to rise steadily, and having adequate knowledge of the products, services, business model, marketing, and competitive edge of the company they have picked for investing in is imperative for one to become a value investor.
Analysis - Evaluating businesses for potential investments by analyzing the price-to-earnings ratio is another key attribute of a value investor. Calculating a company's stock price against its earnings per ratio gives a clear picture of whether the stock was de-valued by a market or not.
Patience - Being patient with your value investments and equating flexibility in your decisions is a significant feature of a value investor if he/she wants to achieve realistic results. Value investing, like all equity investing, is risky and should be part of a long-term diversified portfolio strategy.
Besides undertaking the aforementioned steps, value investors seek to purchase stocks and investments at considerable discounts to their true value, and with a substantial amount of knowledge hope that over the course of time, other investors would also recognize the true value of the company, driving the stock prices to improved heights.