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Value investing often conjures up images of mature, sometimes quite ordinary companies that sell for cheaper than the overall market. While it’s true that most value stocks have low metrics, there is a lot more to this strategy than numbers. It is a combination of art and science, and it begins with a mathematical principle taught in the first lesson of every Finance 101 course: The value of an asset (i.e. business) is the present value of its future cash flows. As value investors, we will aim to scientifically value a company based on real numbers and realistic projections – the exact opposite of wild assumptions (or hope) that a company will grow 20% forever. In other words, instead of jumping blindly into what’s “hot,” we’re using solid data and analysis to more accurately identify a company’s future value. That’s my job. I dive headfirst into the numbers while you get to sit back and reap the rewards. But don’t get me wrong, I absolutely love this part of my job! The Father of Value Investing
It all goes back to 1934, when Benjamin Graham – the father of value investing – changed the game by publishing Security Analysis. For the first time, a scientific framework was laid out to analyze and value stocks. Security Analysis became the Bible of value investing, and remains so to this day. Next came Warren Buffett, who refined Mr. Graham’s original methods and turned them into modern-day value investing. He went along to become Mr. Graham’s intellectual successor as well as the greatest investor of our time. Mr. Buffett added qualitative methods to the previous qualitative approach, seeking bulletproof franchises with large “moats” that dominate his current Berkshire Hathaway portfolio. Mr. Buffett believes – and I agree with him – that if a business is solid and keeps generating cash, the stock almost has to go up over time. And those are the kinds of businesses to invest in. That’s just a brief description and history of what value investing is. I truly believe now is the right time for value investing. The fact is, value investing just works. Over the long term, value stocks produce solid returns – even better than growth stocks – making value investing very effective in building wealth. Plus, it offers less risk and less stress, especially as valuations become irrational and things get dangerous. So while many investors are losing their heads, now is the time to keep yours and make investments with a solid framework in mind. And that’s where value investing comes in. In any and all market conditions, there will always be undervalued stocks, so we can stay invested in a rational, sustainable way without taking on excessive risk. My Membership Includes:
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