subject: Value Investing and Deep Value Investing [print this page] Value Investing and Deep Value Investing Value Investing and Deep Value Investing
Value investing is one of the two major investing strategies, the other is growth investing. The strategy is very simple invest in good stocks having low prices'. The profit comes when the market realizes that the stocks are good and when the prices go up. But in reality, value investing is a hard strategy to master. The hardest part is finding undervalued and underestimated stocks with good fundamentals.
Good fundamental analysis is the first and topmost important process in the value investing strategy; and often the profitability solely depends on this. Investors should put their money only on stocks having very good fundamentals like good past earnings, intrinsic worth, book value, price to earning (P/E) ratio, cash flow, dividends, and good asset to liability ratio. Moreover, the growth and performance of the industry/sector the company is related to is also important. It is also better to monitor the market trend and timings as entering a trade in market bottom can definitely boost the earnings.
Most value investors are long-term investors looking for profit from long-term performance of the company and increase in stock price. Some others want to increase their share ownership of a company. The daily fluctuations of the market do not affect them and they hold to their positions unless there is a major price decline.
Deep value investing is an extreme value investing strategy where investors look for very low priced stocks. They mostly invest in sunset company stocks, stocks of companies in which others show little or no interest. Deep value investing is a more complex process than value investing as the traders need good technical analysis skills in addition to the fundamental analysis skills.
Often deep value investors select stocks having a price-to-book ratio below 1.0 and P/E ratio below 7. They usually follow a bottom-up investing strategy to find lowest priced stocks and then analyze the companies. Many times the investment is made in companies because the investors personally know the company and is confident in its long-term performance and growth. When implemented effectively with technical analysis, the strategy can also be used to get short-term profits.
Both value and deep value investing strategies have high profitability and high risk. Both need good investing knowledge, analysis skills and extreme money management. In fact, deep value investing strategy should be very carefully implemented with good diversification and risk-minimizing tools.
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