Value investing

Probably one of the most suitable styles of long term investment on stocks is value investing. Value investors, more often than not, are able to survive the sudden changes in the market and are also the ones who end up having earned more profits from their investment. When we say long term to a value investor, we're talking of holding a stock not for just six months to a year, which is how long investors usually intend to hold on when they say that they're thinking of a long term outlook. Value investors commonly set themselves up to hold on to their investments for three to five years.

Value investing is a well established approach in stock investments. Basically, what value investors do is that they invest on stocks that had been undervalued by the market. Value investors believe that in buying stocks whose price have fallen they have outsmarted the rest of the market because they bought these stocks at a bargain price today but in a couple of years will be selling them in a much higher value. However, in reality value investors are guided by certain criteria or formula before they make their purchase. Value investors first look at companies who have low price earnings ratios (P/Es), a high level of asset backing, or high dividend yields, or a combination of all these three criteria. What value investors look at is the potential future earnings of the company.

When we talk about value investing, we are commonly looking at two values: the current market value and the intrinsic value of the company. When we say the current market value, we mean what the company is the present worth of the company in the market which can be computed by multiplying the number of issued ordinary shares by the current price of each share. The resulting number would be the market capitalization value of the company. Intrinsic value, on the other hand, cannot be competed with that simple formula. There is no definite way of determining the intrinsic value of a company. Different investors can have the same data but would have different assessment of a company's intrinsic value. Value investors use a variation of techniques that are based on asset values, dividends, earnings, cash flows and other financial criteria to arrive at a conclusion on the intrinsic value of the company.