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Smart Investing -- Any time, Any opportunity, Any job!
Value. How do you create value? How do you recognize it? How do you protect it? How do you grow it?
Yes, my retirement fund is down, way down. And no, I don't claim to be a smart investor in these weird times. But I do believe that hard working people can create value in both the short term and long term. And value is about more than money. The Motley Fool and Warren Buffett embody some of my ideas of "value investing". And many of these value investment guidelines apply to investing in your own job, your own company, and your own community.
Here are five secrets shared by Motley Fool recently that might be worth thinking about...and thinking about how they apply to your immediate world -- your job and your business.
5 Secrets of Value Investing
So how do you do it? Here are some of the secrets value investors use to find great bargains:
- Buy When Wall Street Won't — The big players on Wall Street are very short-term focused. They'll often dump stocks just for missing one earnings estimate. But value investors favor a longer-term view. We can find hidden value in stocks that may be down as much as 30%, based on small news items and diligent research.
- Own Companies, Not Stocks — Don't buy “stocks.” Instead, become a business owner of companies with strong competitive advantages. Buffett looks for companies with solid financial performance managed by seasoned and savvy executives.
- Beware of the 'Value Trap' — Don't be fooled by judging stocks on price alone. Just because a former high-flying stock is selling for half-price doesn't mean it's a good value. The stock may have much farther to fall and may never recover. Without knowing its intrinsic value, or possible catalysts for turnaround, you can't know if a low price is a good value or not.
- Know the True Value — Price is what you pay, value is what you get. Cash flow is the real health of the business. As Buffett says, "Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life." Discounted Cash Flow (DCF) is a powerful tool to help you know whether to buy, hold, or sell. (Motley Fool offers subscribers a unique DCF calculator on their website that makes this simple to do.)
- Don't Overpay for Growth — It's not true that value stocks can't be growth stocks. Growth is a component of value. It's just that value investors don't rely on growth. Value investors minimize risk by looking at the worst case first. They choose investments with a built-in margin of safety. That's why value stocks are the best way to follow Warren Buffett's famous rules: Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.
As Buffett's mentor Benjamin Graham wrote in The Intelligent Investor, "In the short-term, the market is a voting machine, in the long-term it is a weighing machine." So as a value investor, you're not waiting on a rising market to lift your stock — only for the market to realize your stock's true worth. This is a much more certain way to make money.
READ MORE at Motley Fool
Edited by Carolyn Allen