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Value Investing in A Nutshell

You have learned a lot on the story of the turtle and the hare. The hare, with
his cocky speed, is way too confident on his victory over the
tortoise. During the race, the hare stopped for a while and took a short nap. T
he tortoise, with his consistent slow speed wants to catch ahead. And upon reach
ing the hare, who has dozed off, quietly took his steps and outrun the fast cock
y long-eared creature. The hare just woke up to hear the celebration as the tort
oise won the race.
Stock market is no different from the tortoise and the hare story. You can see
the hare in the person of short-sellers and day traders who are sensitive to pri
ce. The tortoise are also the value-investors. They are called the quiet achieve
rs. And one of them is the world's second richest man, Warren Buffet. So it came
to be that value investing is synonimous with Buffet-investing.
For an ordinary investor, one may ask. What is value-investing? How could one ma
ke a "home run" of it? Why does it work so well with Warren Buffet? Where could
an investor find a stock through value-investing means? When is the right time
to apply value investing? This might be just some few questions that you, as an
investor, would like to know about value investing.
For a short-seller, price is what matters most to them. Short-sellers and specul
ators bought stock in consideration to price and price trend. Well, it is good t
o know that they would also make a huge price out of it. But try to consider fro
m some of the market's pundit who said that from the period of January 1966 unti
l October of 1982, the return of Dow, considering the price losses and increases
, has relative been zero. Which means, if you based your stocks on the Dow index
within those period of almost 20 years, you will relatively get back at one. Ho
w much more with the current market sitiuation which is volatile, you might end
up getting a negative portfolio.
Value investing works on a different way. Unlike the regular traders who pick on
price trends, value investors decide when the right price to buy based on the v
alue of the business. The price setters look at the market factors, the value in
vestors look at the business factors. In the first place, it is the business tha
t you are buying and therefore dictates at what price you should be buying a bus
iness and not the market who are just mere spectators of the business.
Value investors takes a great consideration on how the business work. Does the b
usiness profits consistently? Will the business grow? Can the business sustain f
uture earnings? And above all, does the business priced at its current value? It
undermines a a company which has been snubbed by market and thus having a lesse
r market value price without considering that it earns a lot. Most priced compan
ies by value investors are considered garbage or out-of-nowhere to the stock dir
ectory of a regular traders. These are stocks which does not make a hit. Stocks
that does not have a brand name or is not recognizable to some. For others, thes
e are also stocks which have been ignored, though not necessarily stocks with le
sser reputation, but due to some bad publicity which creates a negative pull of
the market price down.
What other market traders dumped, value investors get but in considering also of
the business value. Surely, no investor would put their money on a stock which
has a damaged business. This is what happened when Cocal Cola stocks where acqui
red by Warren Buffet and his cohorts in Berkshire Hathaway.
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