A Summary on Value Investing

The following clip is basically a summary on the concept of value investing:

Basically, the focus of value investing is to figure out how much you would pay for a company if you were to buy it. A company’s market value and intrinsic value should be the same, in theory. However, this is almost never the case. The market value is almost always either above or below the intrinsic value of the company. If the market value of all the stocks is less than the estimated value of the company, then you’ve got an undervalued company. On the other hand, if you were to find a company with a market value above the company’s worth, then the company is overvalued.

Notice how Warren Buffett reads the annual report first before looking at the market value. He does this to avoid his knowledge of the market value from influencing his valuation. If he knew what the market value was before he analyzed the company’s value, he would be biased towards valuing the company higher than the market value for the sake of finding an undervalued stock. However, since Buffett is aware of this bias, he values the company before he looks at the market value.

Value investing is the most reliable investing strategy. If done right, 99% of the time it will never fail. Just look at Warren Buffett, who is the world’s greatest value investor. He has made only a handful of mistakes throughout his fifty plus years of his investing career; even those handful of mistakes he’s made weren’t a significant loss for him. If the investor is willing to put a lot of time and energy into their investments, then they will likely find undervalued stocks that will yield a high return.

Investing Experts

Below are the five top stock investing experts that I will use for my research:

Warren Buffett: Warren Buffett is currently the world's third richest man and has an estimated net worth of approximately $45 billion.At one point he was the richest man in the world, but lost $25 billion in the stock market crash of 2008. His fortune has been built from his ingenious stock investing strategies that he's been using since he was 19 years old. He is widely known as the world's most successful and most powerful investor.

Benjamin Graham: Ben Graham has laid the foundation for successful stock investing in the 21st century. His strategies have been proven by many investors. His book "The Intelligent Investor" is by far the greatest book on investing ever written, according to Warren Buffett. Ben Graham's strategies inpired Warren Buffett and has made Warren Buffett the most successful investor of all time.

Philip Fisher: Philip Fisher is one of the most influential investors of all time. He started his career as a security analyst. His book "Common  Stocks and Uncommon Profits" is one of the most influential books on investing ever written, and is highly recommended by Warren Buffett.

Peter Lynch: Peter Lynch was the manager of Fidelity Magellan Fund. Under his leadership and brilliance, the fund's assets increased from a net worth of $20 million to $14 billion. He has also written "One Up on Wall Street", which is considered a "must read" for investors.

James Cramer: Jim Cramer was a former hedge fund manager , and is the author of multiple stock investing, such as "Mad Money" and "Jim Cramer's Real Money." He is also host of CNBC's "Mad Money."

my 25 questions so far

1.       What is a stock?
2.       What are dividends?
3.       Why are stocks better than bonds and other investments?
4.       Should I go for dividend paying stocks or high growth stocks?
5.       What types of stocks are there?
6.       When should one buy a stock?
7.       When should someone sell a stock?
8.       What financial statistics are important to finding a solid investment?
9.       What industries make the fastest growing investments?
10.   How much should an investor diversify?
11.   Is diversification good or bad?
12.   Does competition affect the price of a stock?
13.   What risks are involved with stock investing?
14.   What risks are involved with high growth stocks, low growth stocks, and dividend paying stocks?
15.   How does the company’s management affect a company’s stock?
16.   How do political factors affect stocks?
17.   What products must a company sell in order to be considered a good investment?
18.   How does research and other expenditures affect the price of a stock?
19.   How do management-labor relations affect the price of a stock?
20.   Are “hot” stocks investments that will yield a high return?
21.   Is Wall Street reliable with their stock picks?
22. How does inflation affect your investments?
23. How does a company's assets and investments affect the price of the stock?
24. How do the company's cost-analysis and accounting methods affect the price of a stock?
25. Are temporary crashes in the price of a stock bad, or do these crashes provide a better buying opportunity?