How to start value investing?

How to start value investing?

Finding undervalued stocks is never an easy task. As a value investor you will often find that to find the best opportunities in the market you have to do deep research. This involves reading all of the financial statements of the company, as well as keeping track of recent news that might influence how the stock will behave. These are just some of the key points to look for when you are researching stocks.

Focus on the company

Focusing on the company you are analyzing is an important step, when researching stocks. Find out what the company does, what are their competitors and how their product or service compares with the competition. These should be your first steps when looking into a company. Once you have gathered enough information about this core part of value stock research, you should turn your attention to a crucial part of the investment process – the valuation.

Value the company

Valuing a company can be a challenge because every company is different, and so it requires you to use different approaches of valuation. For that reason, start by comparing the stock you are interested in with the competitors in the space. Oftentimes you will find that there is a reason why one stock trades at a higher valuation than the other. If the difference has to do with the quality of the product or service they sell, try to determine what kind of customers is choosing your company, and why that is. You will find that some companies target their products and services to different types of customers. For this reason some companies may charge a higher price for a product or service depending on the kind of customer they are after. 

Determine what kind of company it is

To be able to properly value a company, you need to determine which kind of company it is. What is their addressable market like, and in what categories they differentiate themselves. Not every company markets their products in the same way. It is important to put things into perspective, when valuing a company.

Choose to invest

When you accumulate all of the information described above, you are ready to make a decision. Whether to invest or not in a stock is a matter of personal preference that boils down to your investment profile and desired risk. Some stocks are highly volatile and should not be traded by those of you who are risk averse. Investment decisions should be made with a clear strategy in place depending on your goals, and your desired returns. Follow these steps in order to avoid investing mistakes.