Value investing common sense.

  • Whether you do simple valuation process or very complicated methods, remember that value is a relative measure. What you’re trying to find is a bargain. Opportunity to buy shares at a bargain generally arises when something is out of favor.
  • Always look for moderately undervalued shares rather than trying to find out grossly undervalued shares. If a share is grossly undervalued, it means that there is something terribly wrong with that company.
  • You should be able to justify why you bought a share and before buying, make sure you know what would make you sell the stock.
  • Never compare your decisions with others. If you are ready to buy a stock at a particular rate for a reason, there’s someone equally ready to sell that stock for some other reason. So, it’s natural; for others to think contrary to your views.
  • Book profits periodically. All the profits you make are of no use unless you monetize it and put that money in your pocket.
  • Stock markets are full of opportunities every time. You need not worry if one investment you made ends up in loss. Loss is part of the game.  What’s important in such circumstances is to recognize the mistake you made and try to book loss and come out. Treat that loss as the cost of the mistake you made and forget it.
  • As and when you find an under valued stock, don’t rush and put in all your money in one go. Always invest gradually so that you have some cash on hand for unexpected opportunities or needs.
  • Stock investments carry risk. That’s definite.  Risk and rewards are sides of the same coin. If you have taken very les risk, you need to expect only corresponding returns. Do not expect high rewards by taking less risk. That’s an illogical expectation. Less risk,  less reward- that’s the rule in stock markets.
  • Always try to value companies that do business you are familiar with. It helps you to take better decisions to buy and sell. Deal with businesses you Know.
  • Hold a maximum of 10-15 stocks. The more stocks you own, the harder it is to monitor what happens to each of them. Of course, diversification can limit losses, but it can also limit gains. It’s also important to diversify at the bottoms. Buy and diversify more when valuations hit bottoms.
  • You find 3 undervalued stocks- a large cap, Midcap and a small cap. Which one would you opt to invest in? Always opt for large caps first. Larger companies have more analysts following them and greater transparency and are less likely to have trouble someone does not see.
  • Value investing doesn’t need the quick reflex of a trader. You have ample time to think and pre plan everything. So, never act on your emotions.
  • Finally – always remember these 3 time tested buzz words of value investing – patience, patience, patience.

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1 Response to “Value investing common sense.”

Sumit Singh

April 22, 2016 at 12:49 pm

Dear J Victor,
I have been reading your posts for last three months I find these to be by far knowledgeable, easy, and comprehensive then any other material on subject so easily available on the net. I have gained a lot from your posts and I feel reasonably confident in taking my first steps in trading.
Thanks a ton for posting good content for free. Please also suggest me any other souce where I can continue my research further.

Sincerely,
Sumit Singh.

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