What is value investment? What are the advantages and disadvantages of value investment?
Today, what I want to introduce to you is value investment, which may be unfamiliar to some novice investors. So, let's take a look at what value investment is.
What is value investment?
Value investing is one of many investment principles. Its concept was first proposed by Benjamin Graham, an economist. Graham, known as the "originator of value investment", created a complete strategy for value investment in his first book, Smart Stock Investors, published in 1949. This book is not only called the investment bible, Even Warren Buffett, today's "god of stocks", takes it as the standard!
The concept of "value investment" is easy to understand. In short, it means "buying good stocks at reasonable prices".
The complicated point is to find undervalued stocks by analyzing yield rate, price to net value ratio, price to earnings ratio and other methods, and then make long-term investments and sell them when the stock price is falsely high. In other words, value investment is not only about selling high and buying low, but buying when the price is less than the intrinsic value and selling when the price is higher than the intrinsic value.
Value investors believe that stock prices sometimes cannot be reasonably valued. When investors are enthusiastic or extremely panicked, stock prices are often inflated or belittled.
Four characteristics of value investment:
1、 Ignore short-term fluctuations
1. Buy when you look down on it, sell when it is high, and ignore the ups and downs in the middle.
2. The short-term trend is unpredictable.
3. Buffett: "The short-term stock market prediction is a poison. It should be placed in the safest place to avoid children and investors who act like children in the stock market."
4. Buffett on Newton's fourth law of dynamics: For investors as a whole, the more they move, the lower they earn.
2、 Long term investment
1. Long term shareholding: the value of outstanding listed companies will increase over time, because factors such as capital accumulation, investment expansion, price rise, and brand value improvement will continuously improve the value of listed companies.
2. Buffett: "A friend of a time famous enterprise is an enemy of an ordinary company."
3. If you don't want to have a stock for ten years, don't consider having it for ten yearsClock.
4. Own a stock at: always.
3、 Reverse investment
1. Market participants are not rational economic people, but are often influenced by the advantages of human nature such as fear and greed, and always magnify the advantages and disadvantages of the market.
2. The hot stocks that the market consistently pursues are usually falsely high, and the individual stocks are usually underestimated when the market is uniformly short.
3. Others fear my greed, while others fear my greed.
4. Fuzzy right is better than accurate wrong.
5. Buffett: "Most people buy when others are interested. In fact, the best buying opportunity is when others are not interested. Buying hot stocks will not have good results.".
4、 Risk control
1. First, don't lose money. Second, remember the first rule: low risk, high return.
2. The margin of safety is the foundation of successful investment.
3. Don't do what you don't know well: Only do what you fully understand.
4. Careful decision-making: Buffett: "Give everyone a ticket with 20 holes printed on it. You have 20 chances to punch holes. I can improve everyone's financial wealth for life. These 20 holes represent all your investments in your life. Once you have punched all the holes on this card, it means that your investment career is here."
What are the advantages and disadvantages of value investment?
Advantages of value investment:
1. Considerable profit
Value investment allows assets to grow with the company through time compounding. According to the purchase price of individual stocks that are too low, investors sell them when they are higher than their value. The profits are generally very rich (Buffett recently sold individual BYD stocks, earning 33 times in 14 years).
2. Low risk and high return
Because companies are generally the leading industry in the selection of companies, which have a certain competitiveness and are surrounded by the city, compared with some speculative stocks, the risk is low, and the gains brought by the rise of stocks over time are relatively high.
3. Compound interest potential
Value investors will generally reinvest dividends. As the company's value and industrial position improve, you will get rich income.
Disadvantages of value investment:
1. Enterprise value cannot be assessed
Ordinary investors can only estimate the value of an enterprise through financial statements, but there are all kinds of industries. It is very difficult to reasonably evaluate an enterprise. As time goes on, the industry will face challenges that are completely unknown. Whether it can continue to grow in the presence of these variables is very difficult. If you do not wake up to long-term investment, it is easy to buy and sell because of stock price shocks, and it is easy to miss many companies that have risen dozens of times, Therefore, real value investment is not necessarily suitable for most people.
The stock price will fluctuate. It is not the steady growth of the company's profits that is steady and upward. Sometimes, the volatility is very large, and even it may cut back. Therefore, investors must evaluate the investment time they can accept and the extent of their property repatriation to correctly judge whether they are suitable for value investment.
3. Poor investment penetration
Value investors may invest in areas that are not performing well at present and expect to improve in the future. However, this just means that the investment penetration is very poor and there are huge risks to face.
Speaking of this, I believe you have a certain understanding of what value investment is. In general, value investment is a good investment learning method. If you are interested in investment, you can learn more about it.