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Value-oriented investing (Value Investing)

Value-oriented investing (Value Investing)

Value investing, also known as value investing, is a proven investment strategy based on buying undervalued stocks. In this guide, you'll learn how to apply this strategy to your own portfolio.

📖 More in Book

📚 Understand the concept of value investing

Before you start value investing, it's important that you fully understand the concept. Value investing is buying stocks that are trading below their intrinsic value. The goal is to find stocks that are undervalued by the market. A good example of this is Warren Buffet, who is a well-known follower of value investing.

💼 Learn how to analyze companies

To find undervalued stocks, you need to learn how to analyze companies. You should be able to read balance sheets and understand financial ratios such as price-to-earnings (P/E) ratio, return on equity, and dividend yield. For example, if a company has a low P/E ratio and a high dividend yield, it might be undervalued.

🧮 Calculate the intrinsic value of a stock.

The intrinsic value of a stock is the true value of the company, regardless of its current market price. There are several methods for calculating intrinsic value, but one common method is discounted cash flow (DCF) analysis. In this method, you forecast the future cash flows of the company and discount them to their present value.

🛒 Buy undervalued shares

After you have calculated the intrinsic value of a stock, compare it to the current market price. If the market price is below the intrinsic value, the stock is undervalued and could be a good buying opportunity. For example, if the intrinsic value of a stock is 100€ and it is currently trading for 80€, the stock is undervalued.

📈 Hold your shares for the long term

Value investing is a long-term investment strategy. This means that you should hold your stocks for several years or even decades. Over time, the market price of the stock should reflect its intrinsic value. For example, if you bought a stock for 80€ and its intrinsic value is 100€, over time the price of the stock should increase to 100€ or more.

💡 Learn constantly

Value investing requires constant learning and adapting. You should always stay abreast of the companies in your portfolio and be prepared to adjust your strategy as circumstances change. For example, if a company in your portfolio reports poor quarterly results, you need to decide whether this is a temporary weakness or a long-term problem.

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