There are many different investing strategies and philosophies in the market of investment. Everyone thinks their investing strategy or philosophy is superior to others. The truth is most of them are losing money for their investments. It is difficult to say which strategy or philosophy is the best. But, there is one very famous philosophy called value investing. This value investing is used by one of the most successful investors in the world, Warren Edward Buffett. He is the limited investor that reaps a profit during the unstable financial market condition. It is a good idea to learn from Buffett.

Intrinsic value of a company is what value investors focus on. According to this value investing philosophy, there is a specific intrinsic value of a company at a specific moment of time. This intrinsic is highly affected by the company’s own competitiveness. That implies the higher the competitiveness, the higher is the intrinsic value. You may also get an approximate intrinsic value from the stock price. If the market price of the stock is lower than the stock price less your margin of safety, the investment is worth holding.

Looking at the people around you and you may notice that many people buy the stock when its price is low. For a value investor, he or she may not be attracted by the low stock price alone. As mentioned, they focus on the competitiveness, growth, past history and present and future performance of a company instead of the fluctuating stock price.

As value investing focuses on intrinsic value, analysis of a company’s underlying competitiveness becomes the key to success. Market and stock prices always fluctuate. In the short run, the stock price is mostly affected by supply and demand. While in the long run, supply and demand play a less important role. The most influential factors are mainly the company’s own competitiveness and intrinsic value. If you do not perform detailed analysis on a company’s competitive but invest based on the fluctuating stock price, it can be dangerous.

The word long run mentioned in the last paragraph is another key principle of value investing. Value investing tends to ignore the short term fluctuation of a stock. A steady and prolonged growth of the stock is more important. It is because a small gain in every year contributes to a huge gain in 20 to 30 years of time. You may have a question that is it really necessary to hold an investment for 20 to 30 years? The answer is yes for value investing. With reference to the market history and you will discover that there is an overall upward trend with fluctuations in between. A long-term holding of competitive investment minimizes you risk of losing money for short term price fluctuation.

Most of the advices from analysts are short term focused. If you wish to practice value investing, you should not read too many of these advices from TV, newspapers and magazines. Instead, you can start analyzing your investment using SWOT analysis. This is a simple but powerful tool to understand the intrinsic value and competitiveness of a company.

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