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Game Of Value Investors

There is nothing wrong to buy a real 100 dollars bill for 70 dollars.  Right? If you agree then you are about to get into the game of value investors.  That game has been played by the intelligent investors around the globe.  It is time that you too begin to learn how it is played.
Let's get started.

Who Is A Value Investor?

A value investor is an investor who loves to invest in undervalued companies with a stock price well below its intrinsic value or net asset price.  Every stock has a true value or fair value, but sometimes a stock's price can fall below that value.  When that happens, it attracts value investors.

Please stay with me because I will not rephrase everything that has been said before.   

Generally, when it comes to the fair or intrinsic value, it is the net asset price.

Hold that thought for a second, because not all value investors use the same fair value.  That is another topic altogether.  So there are different types of value investors out there using their own metrics to calculate the fair value.  I will get back to that shortly.

In a nutshell, a value investor is an investor who is very interested in financial instruments that are priced below what they consider as the intrinsic value.

The game of value investors always uses the net asset price, but there other metrics used by the smart money that change the game altogether.
Well, if the music has changed, the steps (dance, swings) must too. 

Trap Of Value Investing

Many value investors have been caught in the trap of value investing when an equity that is priced below its fair value becomes stagnant or continues to degrade over the years. 

Sometimes, even if the net asset price did not change, the price can drop from one equilibrium price level to the next.  Consequently, a value investor that is only using the net asset price can find himself or herself trapped for a long time. 

What is happening here is that the stock's price depreciation is going on beneath the net asset price that remains latent.

The trap is that the financial instrument has ticked every box of the traditional value investing, (net asset price) but in reality its value has been degrading beneath all.

Practical Value Investing

First, find stocks that fall well below their intrinsic values.

Second, be sure to perform a valid Google acid test of George Beaulieu.

Third, check if the company is making money or gaining more market share and has a brighter future.

Fourth, check if the financial instrument belongs to a bullish sector that is not yet overbought or a sector that is oversold.

Fifth, check the current market environment.  Is this the best time to be in the financial markets?  Be sure to check the SP-500 and market leaders. 

Important Point

Finding a financial instrument that is priced below its true value or net asset price is just the first step of a value investing. 

More About Intrinsic Value

Every stock has its book value.  The book value or net asset price of a company is the total asset (without intangible assets) minus total liabilities.  

It is the key metric that the value investor rely on.  A healthy or cash generating company that is priced by the financial markets below its net asset price becomes attractive in a growing economy and sector.

Apart from the net asset price, smart investors also use the short and long term equilibrium price levels.  George Beaulieu has developed a formula to calculate both equilibrium price levels. 

The equilibrium price levels reflect the the price-action's current reality.  In case one is a die-hard and old fashioned fundamental investor, please tell me why a healthy company that is making money can be priced below its fair value?

Really, that does not make sense in theory, but it is common in the financial markets because of the equilibrium price levels.

The net asset price is just one of the intrinsic values that sophisticated value investors are using.  That is why many traditional value investors can be easily trapped with the stocks which prices are well below their fair values.

Fibonacci value investors do not only rely on the net asset price, they also use the Fibonacci sweet spot zones. Fibonacci zones between 50% and 61.8% also 78.6% and 88.6%.

Elliott wave value investors combine the net asset price with the Elliott wave forecast in view to time their entries at the start of the third Elliott wave.  Contrary to other value investors, the Elliott wave investors do not often fall into the trap of investing in undervalued stocks that are in the monthly fifth Elliott wave.

As you can see, value investors come in different shapes and forms though they all are interested in companies that are priced below their net asset price.  

Though, all value investors use the net asset price, there are many other intrinsic values that help to buy a company below its real value.

Negligence Of Value Investors

Value investing game is evolving on yearly basis because of the lessons traditional value investors have learnt. 

Most could not afford anymore to neglect Fibonacci, Elliott wave structures, technical traders and other market participants.  It is sad that some value investors have been stuck in the red for a decade because of negligence.   A value investor should not ignore other market players and new intrinsic values.

Combining Value Investing With Other Strategies

The key to a successful value investing game is the market timing.  It can only help to combine value investing with the Elliott wave forecast.  It is also beneficial to combine it with the equilibrium price levels.

Never use the net asset price as the sole tool to determine the true value of a company.  Others use sale growth or projected profit growth.

Why Value Investors Lose?

The number one reason why a value investor does lose or stay in the red for years is because of a wrong market timing.

One will never harvest anything good unless one sows a good seed (in this case undervalued stock) onto a fertile ground in the right season.   Value investors also lose because they keep doubling down even after the stock price is in a free fall.  

Obviously, many value investors do not know how the game of value investing is played.

Conclusion

The game of value investors is a very lucrative game to those who know how to play it.  Obviously that game has evolved over the years, therefore it is no more sufficient to just identify and buy any undervalued financial instrument.  

To get the best out of the value investor game, it is necessary that one does not limit oneself to the net asset price strategy.  There are other intrinsic values, and one must combine those with the net asset price.

The number one cause of the value investors' game loss is the wrong market timing.  A healthy undervalued stock is comparable to a good seed.  One must sow it on a good ground, but also in the due season.

Thank you for visiting stochastic-macd today.  I hope you have gained something from it.  If that is the case, please share and bookmark it today.

I wish you the very best.
Happy Value Investing
To All

This article is written by
George Beaulieu
Founder Of Stochastic-macd