FIVE VALUE INVESTING TIPS
Trying a hand at value investing this year? You can maximize the returns and minimize the losses by following the tips below.
Go beyond the price. Many investors tend to be lured by higher price-to-book or impressive price-to-earnings ratio. Take note that no size fits all. P/B or P/E ratios differ from one country to another and from one industry to another. Picking a company with a renowned stability entails thorough evaluation of financial statements and comparing leverage ratios of a company relative to the other. Sector fundamental is important as well, specifically commodity-linked sectors trading globally.
Invest for yourself. Mind your own business. Trade without noise. Sure, it is difficult to be and remain patient if entities, comprising a considerable portion of your portfolio, are underperforming. Not to mention the market is negative. Traders, remember that value investing focuses on the fundamentals and not living in the moment or short-term movements. Doing your due diligence will help a lot.
Moving outside the bubble. Or trend for that matter. Novice investors might be enticed to dutifully follow the footsteps of seasoned investors such as Benjamin Graham, Bill Ackman, Charlie Munger, and Warren Buffett. The investing giants are like us: they commit mistakes, make wrong decisions, miss trading opportunities, and succeed along the process.
No one’s stopping us from admiring them and mimicking their trades or strategies. But that’s half the battle. If we follow what they do all the time, we might end up losing. Why? Again, no size fits all. What works for John may not be effective for Paul. Different investors, different personalities, different circumstances.
Read and strive to learn. Investing involves continuous learning. Difficulties are inevitable in the market. However, we can deal with them. How? Be active learners and readers. Analyze market data and know value investing by heart.
Forget not to diversify your investments. Pick different asset classes that move in varying directions. The rule is to not place all your eggs in one basket.