STOCK TRADING: VALUE INVESTING

• What does it take to become a successful stock trader?

While there are many factors that determine your success

in this form of trading, value investing is perhaps the most

important determinant factor. Unless you know where and

when to invest, your investment decisions could have

potentially devastating results. So, what is value investing

in stock trading and what does it entail? Here’s a detailed

analysis.

UNDERSTANDING THE CONCEPT OF VALUE

INVESTING

• Basically, value investing refers to buying securities that

trade for less than their actual intrinsic values. Unlike most

other stock trading strategies, it doesn’t require an investor

to have a perfect knowledge of the market finances. That’s

what makes value investing an ideal trading strategy in

stock trading.

FUNDAMENTAL PRINCIPLES

• 1. Each stock has an intrinsic value. Before applying the

principles of value investing, it’s necessary to first

determine the true intrinsic value of the stock that you’re

interested in. This prerequisite knowledge will give you an

added advantage as it enables you to purchase stock at a

bargain.

• 2. Don’t trade with the herd. Regardless of the existing

trading environment, basing your trading decisions on

others opinions are a recipe for failure. As a rule, value

investors don’t base their trading decisions on efficient-

market hypothesis. As majority of stock traders are selling,

value investors are usually buying.

• 3. The intrinsic value of any stock is closely tied to the

owners. The intrinsic value of any stock embodies the

principles of the owners, not the company’s managers. A

company’s management structure can quite easily change

depending on the management style. But while management

changes from time to time, ownership remains.

• 4. Determine your success on your winners, not losers.

You’ll at times suffer losses. Don’t despair. If your winners

outdo your losing traders, then your trading strategy is a

success. Most importantly, learn from the loosing trades

and cut back the losses.

• At a glance, stock trading doesn’t have to be complicated. It

all requires adopting the right trading strategy. Fortunately,

value investing is one the simplest yet effective strategy

that every penny stock trader can use.

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