David Dodd and Benjamin Graham gave the concept of value investing and they have written a book called Security Analysis. Graham also published a book for the layman called “The Intelligent Investor.” This term can take a number of forms, but it can generally be defined as purchasing stocks of companies whose shares are deemed as underpriced. This is being analyzed with the help of fundamental analysis.
Real data like the management of a company and financial conditions are being used in this method to measure the intrinsic value of securities. This is an exact opposite analysis of technical analysis, which is a study of how the price of a particular security behaves and how you can use that behavior to avoid losses and make a profit. Investors use fundamental analysis, whereas traders use technical analysis. However, the prudent traders and investors use both of these methods.
After calculating the intrinsic value of a stock, investors compare it with the market price of that stock. The comparison shows whether a security is underpriced, overvalued, or fairly priced. This difference is known as a margin of safety and protects investors from poor purchasing decisions as well as downturns in the market. The greatest student of Graham, Warren Buffet gave it the name moat.
The simplest theory of Buffet suggests 2 simple rules.
1. Do not lose money,
2. Do not forget the 1st rule.
Based on the real current value in the event of a merger or being purchased by competitors, every company has an intrinsic value. The prices of stocks reflect this value into a long run. However, the prices of stocks can be below or above in the short or medium term. The value investors make a profit from this difference. It is highly advised to buy a security when its intrinsic value is more than 40% than the market price. Make it your margin of safety as it will save you against a premature loss of capital.
A number of investment books are available in the market. You can even find many of them online. Most of them are easy to understand and you can utilize their knowledge by applying them in real life. Moreover, you can also take an investment courses in Singapore to have a proper grasp and understanding of investment strategies and techniques.
Such courses are being taught at 8i Education workshop. They are interesting, easy to understand, and very beneficial to have a deep knowledge of the market as well as to earn more money through investment.
Fundamental analysis includes the calculations of financial ratios and technical analysis normally includes charts that tells you about the market price of a stock at different dates. Both these analyses are very simple and once mastered, you will be able to analyze any company with the help of its balance sheet.
There are numerous companies all over the world. Almost every country has stock exchanges and with the help of the internet, you can have a wide range of investment opportunities. There is no reason for not availing this golden opportunity.