Made popular by the 1987 movie, Robocop, “I’d buy that for a dollar” became a pretty popular saying. Though in the movie, the character who often said it was surrounded by good looking women and said it with a sexual context, I started to say it whenever I saw a really good deal on something. It sorta became my catchphrase for when a really good deal crossed my path.
But what is a really good deal? How do you know when you’ve found one? Ask any grocery shopper or coupon clipper, and they will surely be able to tell you when something is on sale or is being sold at a very good price. This is how Value Investing works.
What is Value Investing?
Value Investing is an investment strategy where investors try to identify stocks of companies that appear to be selling for a price that is cheaper than their intrinsic or book value. In other words, if all the math says that a company’s stock is worth $100 a share, but for some reason, the stock is currently selling for $80.00 a share, then, as I would say…”I’d buy that for a dollar.”
It’s quite simple really. When you see stock that is selling cheaper than you believe it is worth, buy it at a cheaper price. That is Value Investing. Imagine you want to buy a new car that is worth $20,000. You could buy it now for $20,000 or you could wait for the 4th of July Sale and buy it for $17,500. Whether you pay $20,000 or $17,500, you’re still getting the same car with the same features. The difference is the price, not the value.
Value Investors are investors who actively look for opportunities to value invest in stocks. They attempt to pick out the stocks that the Stock Market is undervaluing, and then buy them at a cheaper price. They tend to use a lot of financial analysis to determine the value and then compare that with the cost. We’ve seen how the Stock Market goes up and down based upon good and bad news. Value investors believe this has a big impact on prices and whether companies go “on sale” or not.
It’s funny. When the market is down, most people usually look to sell their stocks. When it goes up, they buy. That’s not what Value Investors do. They look to buy when the market is down and tend to hold on to stocks for longer periods of times. They are typically long-term investors.
One of the most successful Value Investors around is Warren Buffet. He said,
“Be fearful when others are greedy, and greedy when others are fearful.”
Value Investing is all about trying to find companies where the Stock Market has undervalued them and buy them at a cheaper price. “On sale” sorta speak. This is pretty simple to understand. The hard part comes in determining a company’s value. There have been books dedicated to this and many who have tried to simplify the process. At the end of the day, you’re just trying to find a good deal. Some of the best times to find those good deals is when the market is down, due to fear or bad news that has come out. If the company you want to buy stock in is a solid company, buying them at a much cheaper price when the market is down seems to be a no brainer.
As of this writing, Apple stock is valued at $117.67 a share. Now, let’s say bad news comes out or something drastic changes, I wouldn’t look to dump any Apple stock. I’d look for the price to drop enough to give me great value at a cheaper price. Imagine if Apple stock dropped down to like $80.00 a share. I don’t know about you, but “I’d buy that for a dollar!!!”
***As I have mentioned many times…I am NOT a financial advisor. The information here is provided for some general financial education and for entertainment purposes. Follow up with a certified financial advisor to learn more and receive financial guidance.