Understanding the process of value investing is easy. But it is not as easy to implement
The process starts with screening stocks based on its history.
-----Stock History: Value investing is about picking blue chip stocks at discounted price. They represent established companies which has a long history trail. Example: stock analysis worksheet does not accept stocks which has less than 10 years financial data. Warren Buffett will probably look at, at least last 15 years data of a company to estimate its intrinsic value.
----Business Fundamentals: Stock’s 10 years financial data should be checked to estimate the financial health of a company. Idea is to shortlist those stocks which are fundamentally strong. Value investors will invariably invest in only those companies which are fundamental power houses.
---Price Valuation: This is the ultimate screener. No matter how established is the company, no matter how strong are its business, it is not enough. Value investors will not rest till it calculates the intrinsic value. To be more sure of the calculation, they will also apply a suitable margin of safety. Once this is done, comparing current price with intrinsic value value will highlight if the stocks is undervalued or overvalued. Undervalued stocks becomes a good buy.
Example ..Consider the case of Tata Steel & Tata Motors. These are the flagship companies of the Tata Group. Probably they will not cease to do business in next 100 years. But it is facing hard times since last 5-6 years. ..The company is doing everything to maintain the shareholders value. Today (in 2020), Tata Steel has takeover Bhushan Steel. Tata Motors has launched new premium cars. This is a hint of their competence. ..A common man must always be in look-out of such business to buy stocks. When we see the past 10 years performance of these companies, it is hard to estimate their intrinsic value. It is because, in the last 10 years, the company has not performed as well. They have been making low sales and lower profits.
..But looking ahead in future, the prospects looks more promising.
CONCLUSION :-
If you want to invest in stock market, you must learn to practice value investing. The investor must at least know how to value stocks of companies. This way he/she will at least not invest blindly. There are two main ways of valuing stocks. One is done using financial ratios, and other is through intrinsic value calculation. For people who do not want to go into the hassle of intrinsic value calculation can follow the financial ratio approach. But it is not as reliable.
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Hey @tradethetip Great explanation keeping it short and simple. What tools do you use to figure out the individual aspects? like 10 years history etc. Also, I'd like to learn fundamental analysis. I've been investing for about a year and am tired of speculating and keen on learning the fundamentals. Please do share resources if you have some. Appreciate it!
ReviveTraders
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@manishmandal, thank you very much ...yes i tried to keep that simple & easy to understand ...there are tones of financial ratios that is used in fundamental analysis & analysis of the company's management is very important as well ....to learn the very basics of it you can check the zerodha varsity which is available for free in the open sources
TRADEWITHFUN247
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Some of the things you mentioned is very subjective. I remembered that instant of YES Bank debacle when some brokerage firms calculated it's value at 10rs per share and some other firm calculated it in negative.
TRADEWITHFUN247
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@TRADEWITHFUN247 though the filters you mentioned cannot be compromised on .đź‘Ťwell done
mahhisingh
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I am searching last few days about tecticals for investing and here I found THANKS YOU