Those who want to be an investor should know the 2 types of investment. 1. Growth investing and 2. Value investing. Where growth investing is all about buying those stocks that one believes will grow over the time and will have a higher price. Ultimately they make money when the prices go up because of the growth.
On the other hand, value investment technique is not based on growth, although you look for stocks that will have higher prices in future. Such investors believe that a stock is priced below than its true value. For instance, your analysis says a stock’s price should be $12 today, but it is selling at $10. Moreover, one believes that the price will eventually go up to $12 so they buy it before it goes to $12 and sells it when it really goes to $12.
Should You Use Value Investment Technique?
A number of successful investors have been using this investment strategy and Warrant Buffett is one of them as he made billions of dollars using this strategy. In order to mimic their success, make sure you learn, practice as well as use such investment strategies in real life to earn money.
In order to understand this concept, keep in mind that it has everything to do with the companies behind stocks, not stocks themselves. Past trends of a stock do not matter but the company’s reputation matters a lot. So, it is of utmost importance to learn the company. Also, you will be required to do a lot of research.
However, after doing this hard work, you will be able to successfully make more money. Imagine if you work for companies as an employee, you will be required to work in order to earn for your hours worked. In many cases, you can earn more than a regular job because after a successful research, the more you invest the more you will earn.
Devise a Strategy
Only research is not enough because having a strategy is very important. It will help you to decide to choose right investments, how a company should be measured up, and whether you will make a decision on price to cash flow ratios or price to earnings ratio, etc.?
You are advised to first of all, pick the best strategy and keep finding the best investments based on your particular criteria. It is highly advised to invest in multiple companies and make a diversified portfolio. However, you should never stop looking for winning investments.
Learn from the Masters
Those who are still unsure whether they want to use this particular strategy or learn others, they are advised to learn from masters such as Warrant Buffett and Ben Graham, etc. Taking an investment course is another good opportunity because it will help you to learn all the basics and practical examples about such strategies. A number of books are written on this subject and you are advised to pick up the best ones.