Investors that are worried about their stocks and trying to utilise different strategies are always worried about their holdings. One of the most common questions that almost every value investor has in their mind is, whether value investment technique still works or not? The answer to this question is described here in details.
A particular investment analysis called, technical analysis is a study of past financial trends of a company to forecast as well as to make decisions based on it. Such analysis takes the price behaviour of market into consideration. Furthermore, it does not care about the value of companies, but the value investment technique always does that.
What will you do if the market is random? Will the use of past market data really work? Obviously not, as the stock’s price will have a 50% chance of going down or up. But, why it is important to study technical analysis?
The psychology affects investment behaviours as the investors move in the approach of a crowd. This causing trend supports lowest price point of the trend and also resist the highest price point of trend levels to be formed unless anything drives the stock lower or even higher.
Technical analysis is not a useful predictor of long-term stock performance, however, it is useful for predicting short-term stock performance. Stock prices in the short run are the effects of investors’ actions, rumours and news about future, prices governed by the intrinsic value of an underlying business as well as past price movements.
In order to identify potential stocks, value investors always follow the following criteria.
- Stocks that are undervalued.
- Low price to cash flow ratios (Price/Cash flow).
- Low price to book value ratios (Price/Book value).
- Low price to earnings ratio (Price/Earnings).
- Positive earnings in the upward trend.
- Better strategies and a strong management team.
- The competitive advantage of companies.
- Low long-term debt, and especially sound statements. Companies with sound cash flow to pay their long-term debts within 3 consecutive financial years.
How is technical analysis useful to the value investors?
In order to identify over speculated investments, value investors can use technical analysis. Moreover, the over speculated stocks are rarely undervalued because they are overvalued just because of the overcrowded speculation. As you can see, it is the same thing as mentioned in the 1st point above.
Value investment technique is considered a popular investing technique because it is backed by the success of Warren Buffett and new investors are using as well as learning this system. People are also taking different investment course to learn such techniques in a professional way.
So, does this technique of investment really works? Most investors are using the same strategy in the market and obviously it works if you do proper research and fundamental as well as technical analysis. You can easily find a lot of information about such investment strategies on the internet. Simply google value investing Singapore or information that you want to know and you will find tonnes of information about it.