Understanding the concepts of stock market.
What is value investing?
We‘re going to have three main objectives as follows:
- Difference between value trading and value investing
- The difference between asset and liability
- Who created value insvesting
Well to understand this concept let’s assume the trade life of Mr.wilson.
Mr. Wilson started with a home business of selling toffees, then he added upon with bigger candies then the cookies, cup cakes, cakes and so on…
He got it that each item started giving up more value clear up to a big buzzy shop that he owned with time.
Now this is a big question was Mr. Wilson was conducting value trading or value investing?
Let’s reveal! He was actually making it up with value trading. There is a pretty much difference between value trading and value investing.
Value investing is a type of tactic where stocks are selected which appears to trade for less than their intrinsic or trade values. Investors who use this strategy thing that the market overreacts to the good and bad news , resulting in stock price movements which do not corresponds to the company’s fundamentals.
Now to understand this you must be able to individualize between assets and liabilities.
In above examples the car and the bungalow lie under liabilities where as the microwave and the apartmental building lies under the assets, longing for the explanation here it is.
Asset is something that helps gaining you profit after a initial investment where as liabilities are the one who even after investments there are no return’s through it we still have to invest money to keep ourselves up with those. As here the car and the bungalow needs timely servicing, petrol/diesel investment whereas the apartment can be given on rent and create extra income, the oven can be used for baking and selling those items and generating an income. This difference between asset and liabilities if we got to get lead over this concept it proves a great deal while investing.
Who started this value investing? many of them assuming it with one of the great investors Warren Buffet get it on wrong track but even he learned it from BENJAMIN GRAHAM(professor at the Colombia business school) through his two very famous books ‘the intelligent’ investor and ‘security analysis’.