Investing in the stock market, especially for beginners, can seem like an impossible task. With thousands of companies to choose from, how do you know which one to pick and minimize any potential loss? Some of the world’s richest people, including Warren Buffett, believe one way to beat the stock market is to follow what is known as value investing.
Value investing has been around since the early 1920s when two professors began teaching it at Columbia Business School. The idea behind this type of investing is that investors look for stocks that are selling below the company’s true value. These are public stocks which also offer high dividend yields, have low price to earnings multiples or low price to book ratios. Value investing goes against buying the hottest stock at any particular moment and instead trusts that the price will reflect the company’s true nature over the coming years.
There are several basic steps to following value investing. One is to look for a great company. It can’t be just good or OK, it has to be great. This can be a company you work for, buy products from, is environmentally conscious, or one you just really like. If you are going to invest in a company you must really like it or you will not pay as much attention to your investment.
Another way to follow value investing strategies is by checking to see how long the company has been in business. Companies in business less than two years have little track record for you to examine when trying to determine whether or not to invest with them. On the other hand, companies that have been in business for at least ten to fifteen years make excellent candidates for value investing. Companies which have been in business this long have a proven record for investment.
When investing in a company, ask yourself if that company will still be around in ten, twenty or thirty years. The way to make money on the stock market is not in constantly buying and selling, but rather long term investing. If the company isn’t going to survive the next several years, then there is no point in investing in it. You wouldn’t invest several hundred dollars on a new computer if you knew it is going to die in a year so why would you invest in a company that may go under shortly.
The final piece to value investing is making sure that the company you are considering investing in offers something unique. Be sure to find out if they offer something that no one in the same field has. Do they have patents or copyrights? If they do, these can be worth a lot of money and keep others from copying what they do therefore flooding the market. If they have a competitive advantage in their respective field, the chances are better that the company will be stable and still be in business several years later.
Investing in the stock market is not as easy as throwing a dart at a board, but with a little research you will be able to find the undervalued stocks which could pay large dividends down the road.
Credit
This is a guest post from Genuwave LLC. Some of their blogs include
MoneyAlps,
International Travel Medical Insurance,
Reward Credit Card, and
Selling Time Share.
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