The norm of "Buy Low Sell High" is very much applicable to investing. Successful investors like Benjamin Graham, Peter Lynch, Philip A Fisher and Warren Buffett all have this as their key to successful investing. They practice fundamental/value investing and only buy in a stock when share price drops to a level which it deems to be undervalue or "dirt cheap". In fundamental/value investing there is no specific time frame of when must sell off the stocks. However, when the fundamental of the company starts to turn sour or share price appreciates to a level that it has overrun it fundamental ( that is bubble forming ) then it is time to sell off the stock. Therefore, one needs patience to wait to buy at attractive price and needs patience to wait to sell too.
A good way to start learning fundamental/value investing is none other than picking up books to absorb the knowledge and know how of doing it. I started of also by reading up books and the followings are the books that I have read before venturing into fundamental/value investing.
Reading books on successful investors picking up their methods and experiences so as to derive a strategy to suit your own risk is also another form of getting the right direction in fundamental/value investing. Below are the list of books on Benjamin Graham, Peter Lynch, Philip A Fisher and Warren Buffett.
In fundamental/value investing, looking at company's balance sheet, profit & loss statement and cashflow is a must as from those numbers with the help of some financial ratio could use to determine the health and the strength of the company and probably derive a valuation for the company. There are many financial ratios out there and the most common and useful ones which I mostly use in accessing the company are the followings :
2. Return On Equity (ROE)
3. Price-To-Book Ratio (P/B)
4. Current Ratio & Quick Ratio
By chance I attended a presentation on value investing in 2009 by CEO of InvestorCentral, Mark Laudi in which he spoke of the 5 Criteria in selecting stocks that are worth value investing. This could serve as a good starting point for those keen in fundamental/value investing and didn't know which stocks to look into.
Lastly, there are some golden rules which probably most must follow or adhere to when in fundamental/value investing.
1. Patience -- need patience to wait for opportunity
2. Overcoming emotional or psychological factors like fear and greed. The very famous quote of "fearful when others are greedy and greedy when others are fearful"
3. Always invest in whatever one can afford to lose
4. Do your own research before investing and not plain following including recommendation from analysts
5. Only invest in companies that their business is something you are familiar with
6. Diversify in investing and not putting all the eggs in the same basket so as to minimize non-systemic risk
7. Know your own risk level
5. Only invest in companies that their business is something you are familiar with
6. Diversify in investing and not putting all the eggs in the same basket so as to minimize non-systemic risk
7. Know your own risk level
