If you’re a day trader or looking to turn a quick dollar, this post is not for you. If, however, you’re looking for a smart investing strategy to lead you toward stable returns with steady growth in any market, you’ve come to the right place.
Value investing, most often associated with financial guru Warren Buffet, is an investment strategy that has proven highly effective in generating higher than average returns. It involves picking healthy companies whose current stock prices are lower than what the stock is actually worth, and is the primary philosophy of DYF Investing.
The keywords in this concept are “healthy companies” and “lower prices.” As investors, we want healthy companies because they are the ones most likely to thrive in the future. A solid investment strategy hopes to eliminate buying companies that will not see the next decade. But determining the health of a company is no easy task. It involves looking at a variety of factors such as past growth, current debt, and management style. It’s analyzing years of information to understand how well a company is protected against competitors, or if it can weather something as catastrophic as a pandemic.
This is the very logical and analytical side of buying stocks. But Value Investing brings the yin and yang by asking for more than just logic. It challenges you to consider your areas of interest, the products you value, services you are committed to, or causes you seek to support. When you buy stocks you quite literally become part owner in that company. You are endorsing their products and supporting what they stand for locally and globally.
You are providing them the funding necessary to continue creating their product, and are encouraging them to grow or expand into new markets. Value Investing then, encourages you to invest in companies you’d want to own for years to come, for this may be your strongest voice in a very large system. It’s the idea of voting with your wallet, supporting what you want to see more of in this world.
Once you know what companies or industries you are ready to support, the final piece is buying them when they are undervalued. Good, healthy companies sell for what they are worth, and not at a discount. But often events will happen that bring prices down for a time. Large-scale events like the 2006 housing market crash saw a huge drop across dozens of industries. For those who were ready, this presented a fantastic opportunity to purchase a number of stocks as if they were “on-sale”.
Small events happen too. Anyone remember 2013 when Lululemon faced a “sheer” debacle, with pants that were too thin and quite revealing? This, coupled with remarks by the company’s founder that his line of clothing is perhaps not intended for larger bodied people, sent their stock prices plummeting. If Lululemon is a company you feel good about – maybe you buy a lot of their product or love the idea of promoting fitness – this would have been a great time to buy their stock.
Or maybe, because of the remarks made by Chip Wilson (the company’s founder), you recognized their stocks were underpriced but decided to pass, opting for a company that promotes health for all sizes. That is the idea of value investing. Again, finding good companies – ones you care to support and be part of, and waiting to buy them at a time that provides a financial edge.
This is where a modicum of patience is required, as it could be awhile before the companies you want will go on sale. In fact, it could be awhile before any healthy company in any sector is “on sale.” In a bull market, it could be months before a company’s price is right for purchasing.
Patience is also on your side after you buy the stocks. If the companies you’ve picked are solid and healthy, we could expect them to exist for decades to come. Holding on to stocks even through a bear market, or riding out situational events, can yield massive results in the long run. Coca-Cola has seen it share of ups and downs since Buffet bought it in 1988, but he held on, and what began as a 1.8 million dollar investment is now worth 1.2 trillion.
If you are looking for inside information, hoping to buy this morning and sell tonight, move along. But if you are interested in making safe, solid picks with the idea of owning companies and generating wealth for your future, you’ve come to the right place.
For more on Value Investing.
For more on the DYF Scoring System.