|
Quite possibly the most challenging component of becoming a value investor is performing the research to properly assess a company. Which is probably an explanation why everyone is not a value investor. You need to check that a company is fundamentally sound, that its financial statements are healthy, and that it has a competitive advantage on its competing firms. All of the research necessitates that you read annual reports for the organization you're focusing on as well as its competing firms so that you can evaluate risk in addition to the company's future prospects. When all of that is finished and you've figured out the actual company is in fact a good one to invest in, you need to determine if the current share price is trading at a discount. If the stock price isn't trading at a discount, then it makes no real sense to buy the security at a premium. This will remove the reason for making an investment in the business because its future growth is priced into the share price. Take a look at the tactics you will need to implement: Step One: Filter Your Stocks The real key to grow to be thriving value investor is to try to initially filter out firms that are certainly not a suitable match and tend to be not high quality value investing investments. This will involve the removal of companies without any revenues, very high debt-to-equity ratios, micro-cap stocks, organizations whose return-on-equity is under 10%, and companies without habitual positive free cash flow. Thankfully you can find no cost applications that are available which may help with your screening process and there are several brokerage firms that also offer self-service screeners to account holders that allow you to narrow the hunt for securities using specifications you have chosen. Step Two: Read the Annual Reports When 90% of your companies are screened out, you are then able to begin to take a much deeper dive inside the company's fundamentals, investigating its challengers, and consequently evaluating its potentials for growth. This really is the period for you to do your due diligence. Look into the company's annual reports, like the 10k statement, review its financial documents, and assess its management and approach to achieve growth. If you happen to simply want to look into one document, just be sure it's the 10k report so that you look into and comprehend it from start to finish. Should the business structure be way too complex and you are not clear on how the organization earns its profit, move on to the next company. Step Three: Figure out the Intrinsic Stock Value Possibly the roughest of computations is the valuation of a stock dependent upon the potential cash flow of the firm. Computing the intrinsic value of securities is tough because you need to make a few assumptions about the future, that is certainly rarely a guarantee, and there are monotonous formulas that need to be calculated. Switching your assumptions requires that you have to recalculate the intrinsic stock value. By making use of resources like the Intrinsic Stock Value Calculator you can do Step Three before Step Two to really get a prompt decision on whether to continue on with going through additional analysis on the company, however the numbers you write in the calculator really need to be sustained by sensible judgment coupled with a review of the company's financial reports. The growth rates need to be based on looking at the annual reports combined with management's strategies for the business. If you find that the intrinsic value you calculated is in fact greater than today's stock price once you've executed all 3 steps, perhaps you might have discovered a smart investment and you're weall on your path to develop into a winning value investor. If you are interested in learning more about becoming value investor, please visit the Value Investor Headquarters at http://www.valueinvestorhq.com where you will find tools & resources to get started.
Related Articles -
Value Investor, Value Investing,
| 
